Externalities in International Tax Enforcement: Theory and Evidence

Thomas Tørsløv, Ludvig Wier and Gabriel Zucman
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Thomas Tørsløv: Ministry of Taxation of Denmark
Ludvig Wier: UC Berkeley - University of California [Berkeley] - UC - University of California
Gabriel Zucman: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EU Tax - EU Tax Observatory

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Abstract: We show that the fiscal authorities of high-tax countries can lack the incentives to combat profit shifting to tax havens. Instead, they have incentives to focus their enforcement efforts on relocating profits booked by multinationals in other high-tax countries, crowding out the enforcement on transactions that shift profits to tax havens, and reducing the global tax payments of multinational companies. The predictions of our model are motivated and supported by the analysis of two new datasets: the universe of transfer price corrections conducted by the Danish tax authority, and new cross-country data on international tax enforcement.

Date: 2023-05
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Published in American Economic Journal: Economic Policy, 2023, 15 (2), pp.497-525. ⟨10.1257/pol.20200200⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-04816125

DOI: 10.1257/pol.20200200

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