Can Repatriation Tax Holidays Teach Us Something About Monetary Policy Transmission?

Abstract

I study the “bank lending channel” using the 2004 repatriation tax holiday as a natural experiment. I isolate the effect of the repatriated funds on loan supply by (i) comparing the differences in lending between multinational and domestic banks pre- and postrepatriation and (ii) using the change in cash holdings abroad as an instrument for the repatriated funds. My results support the existence of the “bank lending channel.” I document that each additional repatriated dollar led to an increase of $0.04 in lending, which is driven entirely by commercial and industrial loans.