WORKING PAPERS

The Indirect Effect of Import Competition on Corporate Tax Avoidance

SSRN Working Paper 3662998
Slides

This paper empirically examines the role of competition in corporate tax avoidance, with a focus on import competition. I exploit financial statements to measure tax avoidance of US-listed firms and the conferral of Permanent Normal Trade Relations status on China as a quasi-natural experiment. On average, import competition fosters corporate tax avoidance. However, the average effect is driven by multinational enterprises, and more specifically by those implanted in tax havens. In response to the China shock, these firms invested in intangible assets to escape competition, but these intangibles also allowed them to intensify their profit shifting activities. These findings help understand the decline in the average effective tax rate of US-listed firms, the current backlash against large corporations and globalization, and the calls for reform of the international tax system.

Learning the Ropes? Executive Experience and Location Choices of Multinational Firms

SSRN Working Paper 3700932
Slides

In this paper, I show that beyond country- and firm-specific characteristics, experience of executives is crucial to understand multinational enterprises' location choices. Using a dataset on executives and subsidiaries of the largest US-listed firms, I find that hiring an executive having previously worked for a company that had at least one subsidiary in a given country increases the average probability to own subsidiaries in this country by 14 percent after three years. Moreover, I observe a similar effect at the intensive margin and a wage premium for experience in managing multinational activities. Altogether, the findings suggest that executives develop country-specific knowledge, a valuable asset in the labor market that helps companies intensify their presence abroad.

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

SSRN Working Paper 3750623

I empirically explore in this paper the effect of profit shifting activities of multinational enterprises on employee pay. Using a rich database on executives, foreign subsidiaries, and financial statements of US-listed companies, I find that this effect substantially varies across occupations. While the compensation of CEOs and CFOs increases when their firm enters tax havens, non-executive employees, on the contrary, see their wage fall. Furthermore, this inequality-deepening effect is more pronounced in intangible-intensive sectors. These new empirical findings cast light on the distributional consequences of profit shifting and recent trends in income inequalities.

Intra-Industry Diffusion of Profit Shifting Strategies

SSRN Working Paper 3796015

Does tax knowledge spill over across firms? Using data on US-listed firms and an event study approach, I provide systematic evidence that profit shifting strategies spread across companies within sectors. An enterprise is more likely to own a subsidiary in a specific tax haven once another enterprise operating in the same sector enters this tax haven. A battery of three-way fixed effects and the non-existence of pre-trends allow a causal interpretation of the results. These findings suggest that firms replicate the tax avoidance schemes of their peers and carry policy implications.

WORK IN PROGRESS

Quantifying the Effects of International Tax Reforms (with S. Laffitte, M. Parenti, and F. Toubal)

Working paper coming soon

Multinational enterprises exploit legal technicalities to avoid taxes and shift profits to low- or no-tax jurisdictions. These activities affect firms' location decisions and countries' tax revenues and attractiveness. In this paper, we develop a flexible and parsimonious quantitative general equilibrium model of multinational activity embedding corporate taxation and profit shifting. Firms may change their location and profit shifting decisions after a reform, unlike in existing models. Also, we introduce two different tax elasticities for real activity and profit shifting. The model guides the calibration of bilateral profit shifting for which we provide a new methodology. It allows us to simulate the impact of various reforms of the international tax system. We simulate various tax reforms aimed at curbing tax-dodging practices of multinationals. We predict their effect on many outcomes, such as countries' tax revenues and relative attractiveness. We further highlight the real effects of these reforms, as well as their impact on profit shifting and its allocation across tax havens.

PRE-PHD

Revisiting the Effect of the Business Environment and Firm Capabilities on Firm Performance: Theory and Evidence from India

Master thesis available upon request

Hans Raupach Best Paper Award from the European Association for Comparative Economic Studies

Are firms with low capabilities in favorable environments as successful as firms with high capabilities in bad environments? I uncover new stylized facts on the business environment, firm capabilities, and firm performance. Then, I develop a theoretical model which rationalizes them, allows the business environment and firm capabilities to each affect innovation and exports, and guides the econometric exercise. The results reveal that firm capabilities directly spur only innovation, while the business environment directly drives only exports. They imply that policies aimed to boost firm performance should strengthen both the business environment and firm capabilities to maximize their success.