The Missing Profits of Nations

Thomas R. Tørsløv, Ludvig S. Wier and Gabriel Zucman

No 24701, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F23 H26 H87 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-acc, nep-opm and nep-pbe
Note: CF IFM ITI PE
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Citations: View citations in EconPapers (168)

Published as Thomas Tørsløv & Ludvig Wier & Gabriel Zucman, 2023. "The Missing Profits of Nations," The Review of Economic Studies, vol 90(3), pages 1499-1534.

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Journal Article: The Missing Profits of Nations (2023)
Working Paper: The Missing Profits of Nations (2020)
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