We examine how firms utilize cash generated via tax avoidance. Understanding how firms use these cash flows is important given the considerable global attention firms' tax avoidance activities have received. Using an international sample, we find that firms are more likely to invest cash tax savings or use them to repurchase shares rather than distribute them in the form of dividends. We find that our results hold for an international sample of domestic-only firms, distinguishing our study from U.S.-only studies, which focus on constraints and distortions of multinational corporations in a worldwide tax system. When partitioning on country-level governance, we find that firms in weak governance countries are more likely to use tax savings to fund investment and pay dividends. Taken together, our results suggest cash tax avoidance is associated with important firm decisions, and these associations vary across countries.

JEL Classifications: M41; H20; G31; G30.

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