ESSAYS ON TAX AVOIDANCE, MONETARY POLICY AND INTERNATIONAL TRADE

ESSAYS ON TAX AVOIDANCE, MONETARY POLICY AND INTERNATIONAL TRADE GIULIA ZILIO AUGUST 2017 Committee Chair: Dr. Sally Wallace. Major Department: Economics. This dissertation consists of three distinct essays on tax avoidance, monetary policy and international trade. The first chapter focuses on profit shifting. Multinational enterprises (MNEs) manipulate the prices that they use for intracompany transactions (known as transfer prices) to shift profits to countries with more favorable tax treatments. I improve upon the current practice to estimating this elasticity by constructing a measure of the stringency with which countries enforce their anti-tax avoidance rules and take into account their incentive to enforce them. I report evidence showing that the failure to account for the enforcement of anti-tax avoidance rules and the incentive to enforce them results not only in biased estimates of the semi-elasticity of reported profits with respect to CIT-rate but also results in a misspecified empirical model. I estimate the empirical model of reported profits using detailed annual data on more than 40,000 affiliates located in 28 countries during the period from 2008 to 2014. The second chapter I conduct an event study to first examine the role of macroeconomic news surprises on monetary policy expectations; second, I estimate the effect that changes in short and long-term monetary policy expectations have on financial markets on days of macroeconomic news announcements compared to days of federal open market committee (FOMC) announcements. Factor analysis is used to build a short and a long-term measure of monetary policy expectations using federal funds futures and Eurodollar futures. I conclude that the path and the target factors are both affected by several macroeconomic news surprises. Finally in the last chapter I use a stochastic general equilibrium, two-country model of trade and macroeconomic dynamics developed by Ghironi & Melitz (2005) to assess the effect of two exogenous shocks: a negative technology shock to China’s productivity and a trade policy shock that makes exporting to China less costly and importing from China more expensive (known as the border-adjustment tax). I find that a negative productivity shock in China results in a reduction of imports from China and an increase in the entry of firms in the United States. At the contrary, a trade policy shock in the United States leaves American (Chinese) consumers slightly worst (better) off. ESSAYS ON TAX AVOIDANCE, MONETARY POLICY AND INTERNATIONAL TRADE GIULIA ZILIO A Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in the Andrew Young School of Policy Studies of Georgia State University GEORGIA STATE UNIVERSITY 2017 Copyright by Giulia Zilio 2017 ACCEPTANCE This dissertation was prepared under the direction of Giulia Zilio’s Dissertation Committee. It has been approved and accepted by all members of that committee, and it has been accepted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics in the Andrew Young School of Policy Studies of Georgia State University. Electronic Version Approved: Sally Wallace, Dean Andrew Young School of Policy Studies Georgia State University August, 2017 Dissertation Chair: Dr. Sally Wallace Committee: Dr. Federico S. Mandelman Dr. Nguedia Pierre Nguimkeu Dr. Antonio Saravia