Profit Shifting Frictions and the Geography of Multinational Activity

Alessandro Ferrari, Sébastien Laffitte, Mathieu Parenti () and Farid Toubal

Working Papers from HAL

Abstract: International tax rules are commonly viewed as obsolete as multinational corporations exploit loopholes to move their profits to tax havens. This paper uncovers how international tax reforms can curb profit shifting and impact real income and welfare across nations. We introduce profit shifting and corporate taxation in a quantitative model of multinational production. The model delivers "triangle identities" through which we recover bilateral profit-shifting flows. Our estimates of both tax-base and profitshifting elasticities, together with profit-shifting frictions, govern how taxes shape the geography of production and profits. Our model accommodates a rich set of corporate taxation scenarios. A global minimum tax would be beneficial for welfare since it would increase the public good provision and encourage countries to raise their statutory corporate tax rates. Instead, a border-adjustment tax that eliminates profit shifting could result in welfare losses.

Keywords: Profit Shifting; Tax Avoidance; Tax Havens; International Tax Reforms; Minimum Taxation; DBCFT; Multinational firms (search for similar items in EconPapers)
Date: 2022-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04103710v1
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Related works:
Working Paper: Profit-shifting Frictions and the Geography of Multinational Activity (2023)
Working Paper: Profit Shifting Frictions and the Geography of Multinational Activity (2023)
Working Paper: Profit Shifting Frictions and the Geography of Multinational Activity (2023)
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