Regional Tax Differences and Multinational Profits in Europe

Alan P. Murphy
Additional contact information
Alan P. Murphy: Central Bank and Financial Services Authority of Ireland

No 3/RT/09, Research Technical Papers from Central Bank of Ireland

Abstract: This paper tests to what extent are corporate tax differentials motivating the reallocation of reported profits between EU parent multinationals and their European based affiliates. Hines and Rice (1994) report that a 1-percentage point reduction in corporation tax induces a 3% rise in reported profitability of European based affiliates of US parent multinationals. When aggregated firm-level tax data are used and do not directly control for the parent-affiliate pair-wise trading environments, we obtain a semi-elasticity of -2.4 that is similar to previous research. But when we apply firm-level information on the total bundle of tax liabilities and control for the trading environment of each parent-affiliate pair we obtain a semi-elasticity of –0.25. This suggests that while corporation tax differences do affect reported profitability; the magnitude of this effect is lower than previously reported in studies using information from U.S. owned multinationals.

Pages: 35 pages
Date: 2009-03
New Economics Papers: this item is included in nep-acc, nep-eec and nep-pbe
References: Add references at CitEc
Citations:

Downloads: (external link)
https://centralbank.ie/docs/default-source/publica ... murphy).pdf?sfvrsn=4 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:3/rt/09

Access Statistics for this paper

More papers in Research Technical Papers from Central Bank of Ireland Contact information at EDIRC.
Bibliographic data for series maintained by Fiona Farrelly (fiona.farrelly@centralbank.ie).