Tax Policy, Investment and Profit Shifting
Macroeconomic estimates of profit-shifting elasticities typically exceed microeconomic ones. We reconcile these differences by accounting for extensive-margin profit-reporting decisions in a model where multinationals face unobserved and heterogeneous fixed and variable costs of profit shifting. Using UK administrative data, we find that micro semi-elasticities underestimate aggregate semi-elasticities by about 50%. We estimate average fixed and variable costs of profit shifting to be 1.5% and 3.1% of the true tax base, respectively. We validate the model using a quasi-natural experiment that restricted profit shifting by Italian MNEs and use it to evaluate two types of tax policy reforms.
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Copy CitationKatarzyna A. Bilicka, Michael P. Devereux, and İrem Güçeri, "Tax Policy, Investment and Profit Shifting," NBER Working Paper 33132 (2024), https://doi.org/10.3386/w33132.
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