The Foreign Market Effect and Estimating Tax-Motivated Income Shifting

Zero Deng and Scott G. Rane

National Tax Journal, 2026, vol. 79, issue 2, 267 - 304

Abstract: We present evidence that the negative association between foreign profitability and tax rates — conventionally interpreted as income shifting — is appreciably driven by the economics of foreign markets unrelated to international tax planning. To improve income shifting estimates, we propose incorporating country fixed effects in foreign profitability-based tests or using domestic profitability-based tests to validate results. We demonstrate that including country fixed effects lowers estimated outbound income shifting from $44.0 million to $29.3 million per US multinational firm annually, representing a 33.4 percent reduction. These recommendations benefit future income shifting research employing profitability-based models.

Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1086/737267 (application/pdf)
http://dx.doi.org/10.1086/737267 (text/html)
Access to the online full text or PDF requires a subscription.

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:ucp:nattax:doi:10.1086/737267

Access Statistics for this article

More articles in National Tax Journal from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().