Working Paper: CEPR ID: DP16615
Authors: Fotis Delis; Manthos Delis; Luc Laeven; Steven Ongena
Abstract: We provide the first global estimates of profit shifting within firms at the subsidiary-year level. Employing nonparametric estimation techniques within a mainstay model of profit shifting, we examine the responses by subsidiary-year of earnings to the composite tax indicator faced by all subsidiaries of a multinational firm. Our panel includes 26,593 subsidiaries across 95 countries for the period 2009‒2017. Subsequently, we examine correlates of profit shifting, identifying that a key determinant is the subsidiaries’ ratio of intangible assets, and this channel is stronger in countries with weaker institutions. Both our new database and our novel findings open important avenues to analyze the sources and effects of profit shifting.
Keywords: profit shifting; multinational enterprises; nonparametric estimation; intangible assets; institutional quality; global sample
JEL Codes: F23; H25; H26; H32; M41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ratio of intangible assets (G32) | profit shifting (H26) |
| weaker institutional quality (O17) | profit shifting (H26) |
| mergers and acquisitions (G34) | profit shifting (H26) |
| corporate tax increases (K34) | profit shifting (H26) |
| stronger institutional quality (O17) | profit shifting (H26) |
| intangible assets (O34) | profit shifting (weaker institutions) (H32) |