The Missing Profits of Nations

Thomas Torslov, Ludvig Wier and Gabriel Zucman
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Thomas Torslov: UCPH - University of Copenhagen = Københavns Universitet
Ludvig Wier: UC Berkeley - University of California [Berkeley] - UC - University of California

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Abstract: By exploiting new macroeconomic data known as foreign affiliates statistics, we show that affiliates of foreign multinational firms are an order of magnitude more profitable than local firms in low-tax countries. By contrast, affiliates of foreign multinationals are less profitable than local firms in high-tax countries. Leveraging this differential profitability, we estimate that close to 40% of multinational profits are shifted to tax havens globally. We analyze how the location of corporate profits would change if all countries adopted the same effective corporate tax rate, keeping global profits and investment constant. Profits would increase by about 15% in high-tax European Union countries, 10% in the United States, while they would fall by 60% in today's tax havens. We provide a new international database of GDP, trade balances, and factor shares corrected for profit shifting, showing that the rise of the corporate capital share is significantly under-estimated in high-tax countries.

Date: 2020-04
New Economics Papers: this item is included in nep-opm
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03022293v1
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Citations: View citations in EconPapers (47)

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Related works:
Journal Article: The Missing Profits of Nations (2023)
Working Paper: The Missing Profits of Nations (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-03022293

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