Intra-Industry Spillovers of Profit Shifting and Tax Haven FDIs

SSRN Working Paper 3796015
R&R Journal of Economic Behavior and Organization

Do tax avoidance practices spread across firms? The present paper provides systematic evidence along these lines with an event study. It shows that a US-listed enterprise is more likely to enter a specific tax haven if another US-listed enterprise operating in the same sector owns subsidiaries in this tax haven. The inclusion of three-way fixed effects, the absence of pre-trends, and several robustness checks consolidate the results. Moreover, profit shifting spillovers vary over time, across sectors, and by tax haven. The findings suggest that firms replicate the income shifting schemes of their peers and carry policy implications.

The Indirect Effect of Import Competition on Corporate Tax Avoidance

SSRN Working Paper 3662998
Soon to be resubmitted

Award: Best Research Work on International Investment and Development from the United Nations (UNCTAD) and the Academy of International Business (AIB)

The role of competition in corporate tax avoidance is theoretically unclear in the literature. The present paper clarifies this role with an empirical study and a focus on import competition. The analysis shows that competition fosters corporate tax avoidance. Consistent with profit shifting behavior, it also shows that the positive effect of competition on corporate tax avoidance is driven by multinational enterprises already implanted in tax havens. Competitive pressures prompt these companies to invest in intangible assets to limit losses in sales and profits through differentiation. At the same time, the intangibles facilitate tax-motivated income transfers toward offshore financial centers. The findings shed light on the determinants of corporate tax avoidance and profit shifting. More generally, they help understand the decline in the average effective tax rate of US-listed firms, the ongoing backlash against large corporations and globalization, and the recent calls for reform of the international tax system.


Profit Shifting, Employee Pay, and Inequalities: Evidence from US-Listed Companies

SSRN Working Paper 3750623
CESifo Working Paper 9720

Corporate tax avoidance has regularly been accused of aggravating income inequalities. Yet, systematic evidence on this matter is still lacking. To fill this gap, the present paper explores the effect of profit shifting on employee pay among S\&P 1500 companies. The study shows that its effect indeed varies across occupations. Chief executive officers and chief financial officers receive higher compensations when their firm starts operating in tax havens. Non-executive employees, if anything, see their wages fall in the meantime. Furthermore, the inequality-deepening impact of firm entry into tax havens is driven by companies that reward executives on an after-tax basis and more pronounced in intangible-intensive companies. These new findings enrich our understanding of the distributional consequences of profit shifting. They also cast light on the evolution of income inequalities, public opinion about globalization, and ongoing debates on international tax reforms.

(Selected, other tax-related work only upon request)

Executive Experience and Expansion Strategies of Multinational Firms

SSRN Working Paper 3700932

What makes firms expand abroad? This paper argues that executive experience contributes to the internationalization process of multinationals. Evidence reveals that recruiting an executive used to oversee business operations in a given country is associated with a significant increase in the probability to disclose subsidiaries in this country in the forthcoming years. Evidence also reveals that only country-specific experience is determinant and that experience in managing multinational activities yields a compensation premium. A series of robustness checks corroborate the findings, and several identification strategies support a causal interpretation of the results. Thus, the analysis shows that executives develop valuable country-specific knowledge and significantly help firms step up their activities abroad. The paper also draws policy conclusions, with a focus on tax havens and profit shifting.