WORKING PAPERS

The Indirect Effect of Import Competition on Corporate Tax Avoidance

SSRN Working Paper 3662998
Slides

Recipient of the Award for Best Research Work on International Investment and Development from the UN Conference on Trade and Development and the Academy of International Business

The role of competition in corporate tax avoidance is theoretically unclear in the existing literature. This paper empirically examines this role, 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 to establish causality. The results reveal that import competition fosters corporate tax avoidance. However, the effect is heterogeneous across firms. 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 shed light on the determinants of corporate tax avoidance. More generally, they 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.

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

SSRN Working Paper 3750623

Corporate tax avoidance has become a salient policy issue and has regularly been accused of aggravating income inequalities. However, systematic evidence on this issue remains lacking. 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. Chief executive officers and chief financial officers receive higher compensations when their firm enters tax havens. Non-executive employees, if anything, see their wages fall. Furthermore, the inequality-deepening effect is more pronounced in firms rewarding executives on an after-tax basis and intensive in intangible assets. These new empirical findings cast light on the distributional consequences of profit shifting, the evolution of income inequalities, and the recent outcry against globalization.

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, I provide systematic evidence that profit shifting practices spread across companies. 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 absence of pre-trends allow a causal interpretation of the results. This finding suggests that firms replicate the tax avoidance schemes of their peers and carries policy implications.

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

SSRN Working Paper 3700932
Slides

Preliminary, new version coming soon

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.

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

Recipient of the 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.