Tax Policy, Investment and Profit Shifting

Katarzyna Bilicka, Michael Devereux and İrem Güçeri

No 33132, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Macroeconomic estimates of profit-shifting elasticities typically exceed microeconomic ones. We reconcile these differences by accounting for extensive-margin profit-reporting decisions in a model where multinationals face unobserved and heterogeneous fixed and variable costs of profit shifting. Using UK administrative data, we find that micro semi-elasticities underestimate aggregate semi-elasticities by about 50%. We estimate average fixed and variable costs of profit shifting to be 1.5% and 3.1% of the true tax base, respectively. We validate the model using a quasi-natural experiment that restricted profit shifting by Italian MNEs and use it to evaluate two types of tax policy reforms.

JEL-codes: H25 H26 H32 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-iue, nep-pbe and nep-pub
Note: PE
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Working Paper: Tax Policy, Investment and Profit Shifting (2024)
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