Abstract
We develop a methodology to decompose the observed decline in multinational corporations’ (MNCs’) effective tax rates into several components and quantify the role of tax havens. We apply this methodology to the best available data for MNCs headquartered in the USA – from the Bureau of Economic Analysis – and in the EU – from Orbis – and we arrive at three main findings. First, we estimate that between 2005 and 2015 increased profits in tax havens directly explain only 29% and 1% of the 7% and 9% point declines in effective tax rates for US and EU MNCs, respectively. Second, we find that US MNCs have primarily benefited from domestic tax base reductions, most of which can be explained by sectoral changes, while the statutory rate has remained constant. Third, we show that EU MNCs have mainly benefited from falling domestic statutory rates and we observe similar patterns across EU home countries, host countries and sectors.
| Original language | English |
|---|---|
| Pages (from-to) | 338-381 |
| Number of pages | 44 |
| Journal | IMF Economic Review |
| Volume | 70 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - Jun 2022 |
Bibliographical note
Funding Information:We thank two anonymous reviewers for excellent comments. We thank Annette Alstadsæter, Ana Cinta G. Cabral, Ronald B. Davies, Niels Johannesen, Claus Thustrup Kreiner, Dirk Krueger, Caroline Schimanski and Peter Birch Sørensen for their helpful comments on an earlier version of this paper. Javier Garcia-Bernardo has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (Grant Agreement No. 638946). Petr Janský and Javier Garcia-Bernardo acknowledge support from the Czech Science Foundation (CORPTAX, 21-05547M). To ensure transparency and replicability, and in line with open science practices, our entire database and code can be found on the website of the Open Science Framework (https://osf.io/nu42h).
Funding Information:
We thank two anonymous reviewers for excellent comments. We thank Annette Alstadsæter, Ana Cinta G. Cabral, Ronald B. Davies, Niels Johannesen, Claus Thustrup Kreiner, Dirk Krueger, Caroline Schimanski and Peter Birch Sørensen for their helpful comments on an earlier version of this paper. Javier Garcia-Bernardo has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (Grant Agreement No. 638946). Petr Janský and Javier Garcia-Bernardo acknowledge support from the Czech Science Foundation (CORPTAX, 21-05547M). To ensure transparency and replicability, and in line with open science practices, our entire database and code can be found on the website of the Open Science Framework ( https://osf.io/nu42h ).
Publisher Copyright:
© 2022, International Monetary Fund.