partisanship tax policy and corporate profit shifting in a globalized world economy political science scholarship has found mixed evidence on the impact of partisanship on the taxation of firms in this article i show that although left leaning governments set tax rates at higher

tax motivated transfer pricing and us intrafirm trade prices abstract this paper analyzes monthly data on us international trade prices between 1997 and 1999 in order to investigate the impact of tax influences on intrafirm trade prices results indicate that there is substantial evidence of tax motivated transfer pricing in us intrafirm trade prices there is a strong and statistically significant relationship between countries tax rates and the prices of intrafirm transactions controlling for other variables that affect trade prices as country tax rates are lower us intrafirm export prices are lower and us intrafirm import prices are higher this finding is consistent with theoretical predictions regarding tax motivated income shifting behavior

earnings shocks and tax motivated income shifting evidence from european multinationals this paper presents a new approach to estimating the existence and magnitude of tax motivated income shifting within multinational corporations existing studies of income shifting use changes in corporate tax rates as a source of identification in contrast this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low tax and high tax multinational subsidiaries this approach is implemented using a large panel of european multinational affiliates over the period 1995 2005 the central result is that parents positive earnings shocks are associated with a significantly positive increase in pretax profits at low tax affiliates relative to the effect on the pretax profits of high tax affiliates the result is robust to controlling for various other differences between low tax and high tax affiliates and for country pair year fixed effects additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates the magnitude of income shifting estimated using this approach is substantial but somewhat smaller than that found in the previous literature

fiscal paradise foreign tax havens and american business the tax haven affiliates of american corporations account for more than 20 percent of u s foreign direct investment and nearly a third of the foreign profits of u s firms american companies report extraordinarily high profit rates on their tax haven investments in 1982 this behavior implies that the revenue maximizing tax rate for a typical haven is around 5 8 percent american and foreign investment in tax havens has an uncertain effect on u s tax revenue but since low tax rates encourage american companies to shift profits out of high tax foreign countries it is possible that low foreign tax rates ultimately enhance u s tax collections

multinationals profit response to tax differentials effect size and shifting channels this paper provides a quantitative review of the empirical literature on profit shifting behavior of multinational firms we synthesize the evidence from 25 studies and find a substantial response of profit measures to international tax rate differentials accounting for misspecification biases by means of meta regressions we predict a tax semi elasticity of subsidiary pre tax profits of about 0 8 moreover we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel our results suggest that transfer pricing and licensing are the dominant profit shifting channel

does a common set of accounting standards affect tax motivated income shifting for multinational firms abstract i test whether adoption of ifrs by individual affiliates of multinational entities mnes for unconsolidated financial reporting facilitates tax motivated income shifting mnes often justify transfer prices to tax authorities by benchmarking intercompany profit allocations against a range of book profit rates reported by economically comparable independent firms that use similar accounting standards additional qualifying benchmark firms resulting from ifrs adoption could allow managers to support more tax advantaged transfer prices using a database of european unconsolidated financial and ownership information over 2003 2012 i first document an increase in the arm s length range of book profits reported by potential ifrs benchmark firms following affiliate adoption of ifrs i then estimate a statistically and economically significant 11 3 percent tax motivated change in reported book pre tax profits following affiliate ifrs adoption relative to pre adoption and non adopter affiliate years

taxes tariffs and transfer pricing in multinational corporate decision making three interrelated aspects of u s multinational corporation activity are analyzed here the ability to shift profits from high tax countries to low tax countries the impact of host country taxes and tariffs on the distribution of real capital and the influence of these policies on international trade patterns of the united states and host countries the cross sectional empirical analysis indicates that the observed pattern of reported profits in high and low tax countries is consistent with income shifting behavior and that real investment responds to host country effective tax rates and tariffs the united states appears both to import more from and export more to low tax countries where mnc investment is greater but this bilateral focus must be amplified to consider multilateral effects if trade benefits are to be projected copyright 1991 by mit press

munich as germany s no 1 high technology region empirical evidence theoretical explanations and the role of small firm large firm relationships sternberg r and tamasy c 1999 munich as germany s no 1 high technology region empirical evidence theoretical explanations and the role of small firm large firm relationships reg studies 33 367 377 this paper verifies munich s firstrate performance among all german regions based on numerous indicators of rd rather they enjoy diverse and intraregional co operation in innovation sternberg r et tamasy c 1999 munich la premiere technopole allemande des preuves empiriques des explications theoriques et l importa

foreign influence control and indirect ownership implications for productivity spillovers how does the presence of controlled foreign firms affect the productivity of domestic firms in the same industry we revisit the historical distinction between control and influence by the foreign owner and define controlled foreign firms as those with a foreign ultimate owner holding 50 or more of voting shares connecting insights from new internalization theory with knowledge based views of the mne we posit that controlled foreign firms will generate larger productivity spillovers than non controlled foreign firms we use a firm level panel dataset of 575 844 manufacturing firms 2 343 495 observations across 20 european countries to test our proposition we pay careful attention to how firms are categorized as foreign taking into account both direct and indirect ownership links allowing for indirect ownership turns out to be pivotal there are just as many indirectly controlled foreign firms as foreign firms captured with direct ownership data we find positive horizontal spillovers from controlled foreign firms and zero spillovers from non controlled foreign firms interestingly the strongest positive spillovers come from the indirectly controlled foreign firms the implications of our study extend beyond productivity spillovers to areas such as cross border m as joint ventures mne strategies of legitimation and corporate groups

profit shifting of u s multinationals abstract we analyze the profit shifting behavior of u s multinational firms using a unique panel data set of u s tax returns over the period 2002 2012 prior research has found significant effects of tax rates in affiliate and parent countries on the profit shifting behavior of multinational entities with semi elasticities ranging from close to zero to well above one we build on this prior work by allowing more heterogeneity in response across the distribution of tax rates and by including affiliates located in tax havens around the world our findings suggest that elasticities based on a log linear specification may severely understate the sensitivity of profits to tax in low tax jurisdictions while simultaneously overstating this elasticity in high tax jurisdictions accounting for this type of nonlinearity appears crucial in considering how the global allocation of firm profits might change in response to tax rate changes

the effect of taxes on investment and income shifting to puerto rico the income of puerto rican affiliates of u s corporations is essentially untaxed by either puerto rico or the united states this lowers the tax penalty on investment there and also makes it attractive to shift reported taxable income from the u s parent corporation to the puerto rican affiliate this paper investigates these two interrelated impacts of taxation by developing a structural econometric model of the joint decisions regarding investment and income shifting and estimating the model using firm level data on the activity u s corporations in puerto rico the results suggest that the income shifting advantages are the predominant reason for u s investment in puerto rico

international corporate tax avoidance a review of the channels magnitudes and blind spots this paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations it surveys evidence on main channels of corporate tax avoidance including transfer mispricing international debt shifting treaty shopping tax deferral and corporate inversions moreover it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting we find that the literature suggests that for the most recent year a 1 percentage point lower corporate tax rate compared to other countries will expand before tax income by 1 5 percent an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time the literature on tax avoidance still has several unresolved puzzles and blind spots that require further research

union effects on nonunion wages evidence from panel data on industries and cities the authors test for threat and crowding effects of unions on non union wages at the industry and city levels using panel data on the percent organized and nonunion industry and city wage differentials constructed from current population surveys over the period 1973 89 at the industry level increases in the percent organized were associated with decreases in the nonunion industry wage differential suggesting that crowding effects were the predominant union effect on nonunion industry wage differentials in contrast at the city level increases in the percent organized were associated with increases in the nonunion city wage differential suggesting that threat effects predominated the authors also find evidence of negative cross occupation union effects on nonunion industry wage differentials supporting their hypothesis that the industry level results were partly driven by complementarity between union and nonunion labor

do swedish multinationals pay less in taxes than domestic firms in recent years there has been growing concern that multinational enterprises mnes engage in strategic tax planning in order to shift profits to low tax jurisdictions this common perception is generally confirmed by empirical evidence which is foremost provided for countries with high corporate taxes and relatively complex tax systems we investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting we do this by using detailed census data from corporate income statements and balance sheets filed by swedish manufacturing firms between 1997 and 2007 many previous studies have used tax rate differences to identify profit shifting these studies however run the risk of overestimating the amount of tax shifting as this method entangles tax planning activities with the effect a lower corporate tax rate has on resulting profits we avoid this by comparing mnes with domestic firms unable to benefit from other tax jurisdictions in particular we identify systematic differences in tax payments earnings before interest and taxes and equity ratios between multinational and comparable domestic firms based on propensity score matching in addition we examine the tax behavioral impact of acquiring multinational status using difference in differences estimations and or propensity score matching our results reveal that the extent to which multinational firms have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach in particular we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from sweden less

r d intensity and the effective tax rate a meta regression analysis we apply meta regression techniques to provide a quantitative review of the empirical literature on how research and development r d expenses affect the effective tax rate etr r d expenses relate to a well accepted profit shifting channel strategic placement of intellectual property within a multinational entity using a unique hand collected data set we add a new perspective to the current base erosion and profit shifting beps state of research and debate in three ways first observing that primary studies report mixed evidence on how r d expenses affect etr we provide a consensus estimate for this effect second we consider this effect in more detail by separating a tax accounting effect and a profit shifting effect which to our knowledge has not yet been investigated we detect that one third of the r d effect on the etr is due to the tax accounting effect and could be mitigated via book tax conformity we further find that 10 of the profit shifting effect can be traced back to r d tax credits third our meta regression reveals factors that are possible sources of variation and bias in previous empirical studies

did lower unionization in the united states result in more flexible industries do unions really impede manufacturers output flexibility if so in what ways the authors propose a methodology for quantifying george stigler s concept of output flexibility and for decomposing the effects of unionization on average cost differences between union and non union plants using a recently compiled data set on u s three digit manufacturing industries from 1973 to 1996 they adapt this methodology to simulate the effects of unionization on flexibility and average costs for average size plants simulation results indicate that higher unionization was associated with higher average costs and lower flexibility than low unionization higher average costs appear to have been primarily due to higher fixed costs such as higher benefits

financial institutions and markets across countries and over time the updated financial development and structure database this article introduces the updated and expanded version of the financial development and structure database the database includes indicators on the size efficiency and stability of banks nonbank financial institutions and equity and bond markets over 1960 2007 it also contains indicators of financial globalization

economic segmentation worker power and income inequality how economic segmentation generates income inequality constitutes a central question for theories of economic and social organization and of socioeconomic achievement previous research emphasizes two sources of the structural variation in income 1 employers with large amounts of resources for a variety of reasons may find it in their interests to pay workers higher wages and 2 some workers are able to acquire power against their employers as well as against other workers and can therefore extract higher earnings in this paper we investigate several issues involved in the links among economic segmentation worker power and income inequality we argue that the structure of economic segmentation is multidimensional and reflects such distinct concepts as concentration economic scale state intervention in the market capital intensity and organization size worker power also is derived from diverse sources such as union membership occupational skill and licensing class position and tenure wi

when unionization disappears state level unionization and working poverty in the united states although the working poor are a much larger population than the unemployed poor u s poverty research devotes much more attention to joblessness than to working poverty research that does exist o

unions norms and the rise in u s wage inequality from 1973 to 2007 private sector union membership in the united states declined from 34 to 8 percent for men and from 16 to 6 percent for women during this period inequality in hourly wages increased by over 40 percent we report a decomposition relating rising inequality to the union wage distribution s shrinking weight we argue that unions helped institutionalize norms of equity reducing the dispersion of nonunion wages in highly unionized regions and industries accounting for unions effect on union and nonunion wages suggests that the decline of organized labor explains a fifth to a third of the growth in inequality an effect comparable to the growing stratification of wages by education

why pay more corporate tax avoidance through transfer pricing in oecd countries this paper presents suggestive evidence of income shifting in response to differences in corporate tax rates for a large selection of oecd countries we use a new method to disentangle the income shifting effects from the effects of tax rates on real activity our baseline estimates suggest that a substantial share of the revenues from a unilateral increase in the corporate tax rate is lost because of a decline in reported income

the demand for tax haven operations what types of firms establish tax haven operations and what purposes do these operations serve analysis of affiliate level data for american firms indicates that larger more international firms and those with extensive intrafirm trade and high r and d intensities are the most likely to use tax havens tax haven operations facilitate tax avoidance both by permitting firms to allocate taxable income away from high tax jurisdictions and by reducing the burden of home country taxation of foreign income the evidence suggests that the primary use of affiliates in larger tax haven countries is to reallocate taxable income whereas the primary use of affiliates in smaller tax haven countries is to facilitate deferral of u s taxation of foreign income firms with sizeable foreign operations benefit the most from using tax havens an effect that can be evaluated by using foreign economic growth rates as instruments for firm level growth of foreign investment outside of tax havens one percent greater sales and investment growth in nearby non haven countries is associated with a 1 5 to 2 greater likelihood of establishing a tax haven operation

on the measurement of investment types heterogeneity in corporate tax elasticities this paper contributes to debates about the appropriate characterisation of heterogeneous investment types and to what extent different investment motives affect the responsiveness to corporate taxation in particular we employ and refine a methodology to better evaluate the tax elasticity of investment types using a combination of both firm specific information and sector specific information from input output tables we discuss how to classify investment as non related horizontal vertical and complex types first we point out to what extent the resulting classification depends on assumptions made by the researcher second we employ an ample set of classifications and find that non related investment reacts stronger to corporate taxation whereas horizontal investment is less responsive though significant negative tax semi elasticities turn out for the subset of manufacturing industries to address inherent characteristics of vertical and complex investment we extend the methodology and find that by and large stronger business motives reduce the tax responsiveness of investment to a larger extent given the current debates about substantial corporate tax reforms it is all the more important to recognise that corporate tax effects can vary fundamentally between countries driven by country specific differences in their composition of industries and investment types

tax motivated transfer mispricing in south africa direct evidence using transaction data abstract this paper provides the first direct systematic evidence of profit shifting through transfer mispricing in a developing country using south african transaction level customs data i directly test for transfer price deviations from arm s length pricing i find that multinational firms in south africa manipulate transfer prices in order to shift taxable profits to low tax countries the estimated tax loss relating to imported goods alone is 0 5 of corporate tax payments my estimates do not support the common belief that transfer mispricing in south africa is more severe than in advanced economies i find that an oecd recommended reform had no long term impact on transfer mispricing but argue that the method used in this paper provides a cost efficient way to curb transfer mispricing

the la nder are the building blocks of the german capital market data on major voting blocks in the german officially listed companies for the end of 1997 and may 2001 are used in order to explore the spatial dimensions of the system of corporate control listed companies are very unevenly distributed and their institutional and geographical concentration has not decreased holdings of voting blocks in companies are in turn getting more and more dispersed but the majority of corporate control is still intraregional with the holders of voting rights coming from the same lander as the controlled corporations gravity equations show that distance is a very strong determinant of corporate control links and its role applies to all types of companies and holders though to a varying degree from the perspective of corporate control the german capital market is very regionalized considering that the study spans a short period of time however the pace of integration is pronounced a partir des donnees sur les principaux regroupements de votes dans les societes allema

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

production of university technological knowledge in european regions evidence from patent data acosta m coronado d leon m d and martinez m a production of university technological knowledge in european regions evidence from patent data regional studies this paper explores the european regional distribution of the production of new technological knowledge generated by universities as measured by patent counts the empirical basis for this study is a unique panel data set of 4580 european university patents from 1998 to 2004 the main findings were a strong regional and sectoral concentration of patents and no average relation between university technological specialization and industrial specialization furthermore the results suggest that variations in regional research and development funding do affect patenting activities in regions with elasticities showing constant returns to scale but no evidence was found regarding the industrial potential of the region encouraging the production of new university technological knowledge acosta m coronado d leon m d et martinez m a la

measuring the knowledge base of regional innovation systems in germany in terms of a triple helix dynamics the interaction among the three sub dynamics of economic exchange technological innovation and institutional control can be captured with a generalized triple helix model we propose to use the information contained in the configuration among the three sub dynamics as an indicator of the synergy in a configuration this measure indicates the reduction of the uncertainty which prevails at the level of an innovation system on the basis of data at the district level in germany the conclusions of a previous study about the netherlands are tested medium tech manufacturing is the main driver of the knowledge based configuration in a regional economy while knowledge intensive services tend to uncouple the economy from the regional configuration at the level of regions nuts 2 germany s knowledge based economy is no longer structured in terms of the previous east west divide of the country while this divide has prevailed at the level of the states nuts 1 that constitute the federal republic however the effects of high and medium tech are not specific for the western or eastern parts of the country the configuration of medium tech manufacturing can be considered a better indicator of the knowledge based economy than that of high tech manufacturing

the influence of governance infrastructure and corporate governance on profit shifting in this article we develop a conceptual model to examine the influence of quality of country level governance infrastructure and corporate governance effectiveness on profit shifting we empirically test propositions derived from the model with a unique firm level data set and using multiple indicators of governance infrastructure quality and corporate governance mechanisms we estimate that on average about 6 of total pre tax income is shifted out of foreign owned firms in india we show that governance infrastructure that improves collective action and transparency in both the foreign and host country reduces shifting on the other hand secure property rights and efficient contracting in the foreign country increases shifting we also find that monitoring by foreign institutional investors restricts shifting

changes in corporate effective tax rates over the past 25 years abstract we investigate systematic changes in corporate effective tax rates over the past 25 years and find that effective tax rates have decreased significantly contrary to conventional wisdom the decline in effective tax rates is not concentrated in multinational firms effective tax rates have declined at approximately the same rate for both multinational and domestic firms moreover within multinational firms both foreign and domestic effective rates have decreased finally changes in firm characteristics and declining foreign statutory tax rates explain little of the overall decrease in effective rates

does membership payoff for covered workers a distributional analysis of the free rider problem this paper examines the union membership wage premium among private sector employees covered by collective bargaining agreements using current population survey data for 2000 2003 the author not only estimates the conditional mean wage premium the metric on which most previous research has focused but also employs recently developed instrumental quantile regression techniques to estimate the wage effect of membership across the wage distribution members enjoyed on average a wage premium of 9 over comparable covered nonmembers further analyses find no evidence that this mean premium is explained either by unobserved differences or by measurement error the author also finds that a narrow focus on the mean impact partially masks heterogeneity in the impact across the distribution notably membership wage effects were considerably more pronounced for low wage earners than for high wage earners

labor market institutions and wage inequality the authors investigate how labor market institutions such as unemployment insurance unions firing regulations and minimum wages have affected the evolution of wage inequality among male workers results of estimations using data on institutions in eleven oecd countries indicate that changes in labor market institutions can account for much of the change in wage inequality between 1973 and 1998 factors found to have been negatively associated with male wage inequality are union density the strictness of employment protection law unemployment benefit duration unemployment benefit generosity and the size of the minimum wage over the 26 year period institutional changes were associated with a 23 reduction in male wage inequality in france where minimum wages increased and employment protection became stricter but with an increase of up to 11 in the united states and united kingdom where unions became less powerful and in the united states minimum wages fell

international profit shifting within multinationals a multi country perspective abstract we model the opportunities and incentives generated by international tax differences for international profit shifting by multinationals the model considers not only profit shifting arising from international tax differences between affiliates and parent companies but also from tax differences between affiliates in different host countries our model yields the prediction that a multinational s profit shifting in a country depends on a weighted average of international tax rate differences between all countries where the multinational is active using a unique dataset containing detailed firm level information on the parent companies and subsidiaries of european multinationals and information about the international tax system we test our model and empirically examine the extent of intra european profit shifting by european multinationals on average we find a semi elasticity of reported profits with respect to the top statutory tax rate of 1 3 while shifting costs are estimated to be 0 6 of the tax base international profit shifting leads to a substantial redistribution of national corporate tax revenues many european nations appear to gain revenues from profit shifting by multinationals largely at the expense of germany

good times bad times postwar labor s share of national income in capitalist democracies this article returns to a classic question of political economy the zero sum conflict between capital and labor over the division of the national income pie a detailed description of labor s shar