Multinationals' profit response to tax differentials: Effect size and shifting channels

Jost H. Heckemeyer and Michael Overesch

No 13-045, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: 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.

Keywords: Profit Shifting; Multinational Firm; Corporate Income Tax; Meta-Analysis (search for similar items in EconPapers)
JEL-codes: H25 H26 H32 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-bec, nep-hme and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (111)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:13045

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