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Multinationals profit response to tax differentials: Effect size and shifting channels

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  • Jost H. Heckemeyer
  • Michael Overesch

Abstract

This paper provides a quantitative review of the empirical literature on profit-shifting behaviour of multinational firms. We synthesize the evidence from 27 studies and find a substantial response of profit measures to international tax rate differentials. Accounting for confounding factors by means of meta-regressions, we predict a tax semi-elasticity of subsidiary pre-tax profits of about 0.8. Moreover, we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel. Back-of-the-envelope calculations suggest that transfer pricing and licensing are the dominant profit-shifting channels.

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  • Jost H. Heckemeyer & Michael Overesch, 2017. "Multinationals profit response to tax differentials: Effect size and shifting channels," Canadian Journal of Economics, Canadian Economics Association, vol. 50(4), pages 965-994, November.
    • Handle: RePEc:cje:issued:v:50:y:2017:i:4:p:965-994
    DOI: 10.1111/caje.12283
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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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