Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/57956 
Year of Publication: 
2012
Series/Report no.: 
CESifo Working Paper No. 3791
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper presents a new approach to estimating the existence and magnitude of tax-motivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period 1995-2005. The central result is that parents' positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature.
Subjects: 
international taxation
income-shifting
multinational firms
earnings shocks
JEL: 
H25
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size
308.49 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.