The Missing Profits of Nations
By Thomas Tørsløv, Ludvig Wier, G. Zucman. The Review of Economic Studies, 2018
535 citations recorded by the source corpus.
By exploiting new macroeconomic data known as foreign affiliates statistics, we show that affiliates of foreign multinational firms are an order of magnitude more profitable than local firms in a number of low-tax countries. Leveraging this differential profitability, we estimate that 36% of multinational profits are shifted to tax havens globally. U.S. multinationals shift twice as much profit as other multinationals relative to the size of their foreign earnings. We analyze how the location of corporate profits would change if shifted profits were reallocated to their source countries. Domestic profits would increase by about 20% in high-tax European Union countries, 10% in the United States, and 5% in developing countries, while they would fall by 55% in tax havens. We provide a new international database of GDP, trade balances, and factor shares corrected for profit shifting. In contrast to the picture painted by official statistics, our results suggest that the corporate capital share has increased not only in North America but also in high-tax European countries. Capital is making a comeback globally, but its rise is obscured by the tax avoidance strategies of multinational companies.
Subfields: Accounting, Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/9396d823e9856e3486730d0d7e92d94ca8546dbc
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Citations in the corpus
- What is Real and What is Not in the Global FDI Network? (2019, unknown): “A key constraint is Orbis’ partial coverage (e.g. Tørsløv et al., 2018): in any given economy only a subset of corporations are represented in the database, and coverage varies considerably across economies and over time.”
- Comparing UK Tax Returns of Foreign Multinationals to Matched Domestic Firms (2019, unknown): “Further, as pointed out recently by OECD6, Clausing (2016) and Torslov et al. (2018) this may also be traced to the near absence of tax haven observations in the accounting datasets.”
- Research on international business: The new realities (2021, background): “Such “base erosion and profit-shifting” practices (Dharmapala, 2014; Contractor, 2016; Tørsløv et al, 2018; Cooper & Nguyen, 2020) are feasible in bricks-and-mortar firms, but have become commonplace in MNEs when products are sold via digital platforms and many payments are made for the use of…”