The Exorbitant Tax Privilege
We estimate and attempt to explain the evolution of the taxes paid by U.S. multinationals on their foreign profits since 1966. In the oil sector, taxes paid to oil-producing States have been contained, allowing U.S. firms to earn high after-tax returns. Foreign taxes fell abruptly after the first Gulf War. In sectors other than oil, the effective foreign tax rate has fallen by half since the late 1990s. Almost half of this decline owes to the rise of profit shifting to tax havens. The low foreign taxes paid by U.S. multinationals can explain half of the U.S. cross-border return differential.
We thank numerous conference and seminar participants for helpful comments and reactions. Wright is currently employed at HM Treasury but this research is done in a personal capacity. It does not represent the view of HM Treasury. He acknowledges financial support from the American Foundation for the Paris School of Economics. Zucman acknowledges financial support from the Institute for New Economic Thinking, the Laura and John Arnold foundation, and the Sandler foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.