CANCELADO JRC B2 Seminar: "Profit shifting frictions and the geography of multinational activity" - Mathieu Parenti
Abstract
We develop a quantitative general equilibrium model of multinational activity embedding corporate taxation and profit shifting. In addition to trade and investment frictions, our model shows that profit-shifting frictions shape the geography of multinational production. Key to our model is the distinction between the corporate tax elasticity of real activity and profit shifting. The quantification of our model requires estimates of shifted profits flows. We provide a new, model-consistent methodology to calibrate bilateral profit-shifting frictions based on accounting identities. We simulate various tax reforms aimed at curbing tax-dodging practices of multinationals and their impact on a range of outcomes, including tax revenues and production. Our results show that the effects of the international relocation of firms across countries are of comparable magnitude as the direct gains in taxable income.
Speaker
Mathieu Parenti is an associate professor at the Université Libre de Bruxelles, a research fellow at the CEPR and a research affiliate at CESifo. His research interests include international trade, trade and corporate tax policy, and market power.
JRC B2 Seminar: “Pennies from Haven: Wages and Profit Shifting” – Johannes Scheuerer
Abstract
The ability of some multinationals to reduce their tax burdens by shifting profits to tax havens has drawn increasing criticism both because of the lost revenues to high-tax countries and the perceived inequality this creates in the tax burden across firms. We demonstrate that such concerns are not the only impacts of profit shifting by using rich matched employer-employee data to show that profit-shifting firms pay higher wages. This is particularly apparent among service firms where the wage premium is approximately 2%. Further, there is substantial within-firm heterogeneity with high-skill occupations earning higher profit-shifting wage premiums. CEOs gain the most, with their wages rising nearly 10%. Finally, our back-of-the envelope calculations indicate that higher wages lead to higher income tax revenues that offset around 12% of the fall in Norway’s corporate tax revenues due to profit shifting. Thus, profit shifting not only impacts government revenues, but contributes meaningfully to aggregate wage inequality.
Speaker
Johannes Scheuerer is a PhD Candidate in the School of Economics at University College Dublin and a Research Affiliate at SKATTEFORSK Centre for Tax Research. His research interests lie in the field of empirical international economics, with a focus on foreign direct investment and international corporate taxation. His current work revolves around the profit shifting activities of multinational firms and their consequences for the wider society.
