Working Paper: NBER ID: w14121
Authors: Robert E. Lipsey
Abstract: As production comes to depend more on intangible productive assets, the location of production by multinational firms becomes increasingly ambiguous. The reason is that, within the firm, these assets have no clear geographical location, but only a nominal location determined by the firm's tax or legal strategies.
The effects of these location ambiguities, and the resulting distortions for tax reasons of the location of production, are described and it is estimated that for U.S. firms' affiliates in a few tax havens alone, the exaggeration of value added in those locations amounted, in 2005, to about 4 percent of worldwide affiliate sales, and the exaggeration of sales to about 10 percent of worldwide affiliate sales. \n\nSome possibilities for estimating the location of production that could supersede the present dependence on accounting measures distorted by tax-saving policies are described.
Keywords: Intangible Assets; Foreign Direct Investment; Intrafirm Trade
JEL Codes: D2; F23; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax strategies (H26) | Geographical assignment of production (R32) |
| Geographical assignment of production (R32) | Measurement distortions in production location and trade (F12) |
| Allocation of intangible assets (O34) | Distortion of reported output and trade figures (F14) |
| Tax strategies (H26) | Allocation of intangible assets (O34) |
| Tax strategies (H26) | Distortion of reported output and trade figures (F14) |