IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v152y2024ics0022199624001491.html
   My bibliography  Save this article

A macroeconomic perspective on taxing multinational enterprises

Author

Listed:
  • Dyrda, Sebastian
  • Hong, Guangbin
  • Steinberg, Joseph B.

Abstract

We develop a general-equilibrium model to study the macroeconomic consequences of international profit shifting by multinational enterprises (MNEs). In our model, MNEs shift profits by exploiting intangible capital transfer pricing rules, which makes intangible investment more attractive and leads to higher output at home and abroad. We use the model to quantify the effects of two reforms proposed by the OECD: (i) reallocating MNEs’ profit tax bases to the countries where they sell their products; and (ii) a minimum global corporate income tax. Both reforms would reduce profit shifting substantially, but (i) would reduce global output whereas (ii) would have little macroeconomic impact. The reforms’ distributional implications would also be important. In high-tax countries, tax revenues would increase more than output declines, raising gross national income and enabling redistribution that could offset lower wages. In contrast, output and tax revenues would both drop in low-tax countries, significantly reducing national income.

Suggested Citation

  • Dyrda, Sebastian & Hong, Guangbin & Steinberg, Joseph B., 2024. "A macroeconomic perspective on taxing multinational enterprises," Journal of International Economics, Elsevier, vol. 152(C).
  • Handle: RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001491
    DOI: 10.1016/j.jinteco.2024.104022
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199624001491
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jinteco.2024.104022?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    2. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-325, April.
    3. Michael Ewens & Ryan H. Peters & Sean Wang, 2025. "Measuring Intangible Capital with Market Prices," Management Science, INFORMS, vol. 71(1), pages 407-427, January.
    4. Johannesen, Niels, 2022. "The global minimum tax," Journal of Public Economics, Elsevier, vol. 212(C).
    5. repec:bin:bpeajo:v:49:y:2019:i:2018-01:p:257-345 is not listed on IDEAS
    6. Sebastian Beer & Ruud de Mooij & Li Liu, 2020. "International Corporate Tax Avoidance: A Review Of The Channels, Magnitudes, And Blind Spots," Journal of Economic Surveys, Wiley Blackwell, vol. 34(3), pages 660-688, July.
    7. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70(3), pages 215-215.
    8. Ellen R. McGrattan & Andrea Waddle, 2020. "The Impact of Brexit on Foreign Investment and Production," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(1), pages 76-103, January.
    9. Richard Bolwijn, & Bruno Casella & Davide Rigo, . "Establishing the baseline: estimating the fiscal contribution of multinational enterprises," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    10. Alessandria, George & Choi, Horag & Ruhl, Kim J., 2021. "Trade adjustment dynamics and the welfare gains from trade," Journal of International Economics, Elsevier, vol. 131(C).
    11. repec:spo:wpmain:info:hdl:2441/6apm7lruv088iagm4rv2c33jtg is not listed on IDEAS
    12. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, vol. 35(2), pages 229-240, March.
    13. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-293, May.
    14. Baris Kaymak & Immo Schott, 2018. "Corporate Tax Cuts and the Decline of the Labor Share," 2018 Meeting Papers 943, Society for Economic Dynamics.
    15. Stefania Garetto & Lindsay Oldenski & Natalia Ramondo, 2019. "Multinational Expansion in Time and Space," Boston University - Department of Economics - Working Papers Series WP2019-08, Boston University - Department of Economics.
    16. Peters, Ryan H. & Taylor, Lucian A., 2017. "Intangible capital and the investment-q relation," Journal of Financial Economics, Elsevier, vol. 123(2), pages 251-272.
    17. Dhammika Dharmapala, 2014. "What Do We Know about Base Erosion and Profit Shifting? A Review of the Empirical Literature," Fiscal Studies, Institute for Fiscal Studies, vol. 35, pages 421-448, December.
    18. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 55-130, Elsevier.
    19. Julian di Giovanni & Andrei A. Levchenko & Jing Zhang, 2014. "The Global Welfare Impact of China: Trade Integration and Technological Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(3), pages 153-183, July.
    20. Slemrod, Joel & Wilson, John D., 2009. "Tax competition with parasitic tax havens," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1261-1270, December.
    21. Hong, Qing & Smart, Michael, 2010. "In praise of tax havens: International tax planning and foreign direct investment," European Economic Review, Elsevier, vol. 54(1), pages 82-95, January.
    22. Robert J. Barro & Jason Furman, 2018. "Macroeconomic Effects of the 2017 Tax Reform," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(1 (Spring), pages 257-345.
    23. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
    24. Mr. Shafik Hebous & Mr. Alexander D Klemm & Yuou Wu, 2021. "How Does Profit Shifting Affect the Balance of Payments?," IMF Working Papers 2021/041, International Monetary Fund.
    25. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    26. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    27. Huizinga, Harry & Laeven, Luc, 2008. "International profit shifting within multinationals: A multi-country perspective," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1164-1182, June.
    28. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    29. repec:hal:spmain:info:hdl:2441/6apm7lruv088iagm4rv2c33jtg is not listed on IDEAS
    30. Ernesto Crivelli & Ruud De Mooij & Michael Keen, 2016. "Base Erosion, Profit Shifting and Developing Countries," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(3), pages 268-301, September.
    31. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    32. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 149-182.
    33. 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.
    34. Charles Cadestin & Alexander Jaax & Sébastien Miroudot & Carmen Zürcher, 2021. "Multinational enterprises and intangible capital," OECD Science, Technology and Industry Policy Papers 118, OECD Publishing.
    35. Alan J. Auerbach, 1983. "Corporate Taxation in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 451-514.
    36. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dyrda, Sebastian & Hong, Guangbin & Steinberg, Joseph B., 2024. "Optimal taxation of multinational enterprises: A Ramsey approach," Journal of Monetary Economics, Elsevier, vol. 141(C), pages 74-97.
    2. Ana Maria Santacreu & Ashley Stewart, 2025. "The Impact of the 2017 Tax Cuts and Jobs Act on U.S. Multinationals' Intangible Assets," Review, Federal Reserve Bank of St. Louis, vol. 107(4), pages 1-16, March.
    3. Katarzyna A. Bilicka & Michael P. Devereux & İrem Güçeri, 2024. "Tax Policy, Investment and Profit Shifting," NBER Working Papers 33132, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Krautheim, Sebastian & Schmidt-Eisenlohr, Tim, 2011. "Heterogeneous firms, 'profit shifting' FDI and international tax competition," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 122-133, February.
    2. Garcia-Bernardo, Javier & Janský, Petr, 2024. "Profit shifting of multinational corporations worldwide," World Development, Elsevier, vol. 177(C).
    3. María T. Álvarez-Martínez & Salvador Barrios & Diego d'Andria & Maria Gesualdo & Gaetan Nicodeme & Jonathan Pycroft, 2022. "How large is the corporate tax base erosion and profit shifting? A general equilibrium approach," Economic Systems Research, Taylor & Francis Journals, vol. 34(2), pages 167-198, April.
    4. Mongrain, Steeve & Oh, David & van Ypersele, Tanguy, 2023. "Tax competition in the presence of profit shifting," Journal of Public Economics, Elsevier, vol. 224(C).
    5. Marko Köthenbürger & Federica Liberini & Michael Stimmelmayr, 2018. "Is it just Luring Reported Profit? The Case of European Patent Boxes," CESifo Working Paper Series 7061, CESifo.
    6. Johannes Becker, 2021. "Second-Best Source-Based Taxation of Multinational Firms," CESifo Working Paper Series 9329, CESifo.
    7. Dobranschi, Marian & Nerudová, Danuše & Solilová, Veronika & Litzman, Marek, 2023. "An alternative measure of profit shifting and corporate income tax losses," Journal of Multinational Financial Management, Elsevier, vol. 70.
    8. Javier Garcia-Bernardo & Petr Janský & Thomas Tørsløv, 2022. "Decomposing Multinational Corporations’ Declining Effective Tax Rates," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(2), pages 338-381, June.
    9. Nerudova, Danuse & Dobranschi, Marian & Solilová, Veronika & Litzman, Marek, 2023. "Onshore and offshore profit shifting and tax revenue losses in the European Union," Economic Modelling, Elsevier, vol. 119(C).
    10. Arnt Ove Hopland & Petro Lisowsky & Mohammed Mardan & Dirk Schindler, 2014. "Income Shifting under Losses," CESifo Working Paper Series 5130, CESifo.
    11. Becker, Johannes & Wilson, John D., 2023. "Tax competition with two tax instruments — and tax base erosion," Journal of Public Economics, Elsevier, vol. 225(C).
    12. Hayato Kato & Hirofumi Okoshi, 2022. "Economic Integration And Agglomeration Of Multinational Production With Transfer Pricing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1325-1355, August.
    13. Katarzyna Bilicka & Evgeniya Dubinina & Petr Janský, 2022. "Fiscal consequences of corporate tax avoidance," WIDER Working Paper Series wp-2022-97, World Institute for Development Economic Research (UNU-WIDER).
    14. Ludvig Wier & Hayley Erasmus, 2023. "The Dominant Role of Large Firms in Profit Shifting," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(3), pages 791-816, September.
    15. Marika Viertola, 2023. "Profit Shifting of Multinational Enterprises: Evidence from the Nordics," Working Papers 18, Finnish Centre of Excellence in Tax Systems Research.
    16. Makoto Hasegawa, 2023. "Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals," National Tax Journal, University of Chicago Press, vol. 76(4), pages 771-804.
    17. Matthias Wrede, 2009. "Multinational Capital Structure and Tax Competition," MAGKS Papers on Economics 200934, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    18. Hristu-Varsakelis, Dimitrios & Karagianni, Stella & Saraidaris, Anastasios, 2011. "Equilibrium conditions in corporate tax competition and Foreign Direct Investment flows," Economic Modelling, Elsevier, vol. 28(1), pages 13-21.
    19. Steinberg, Joseph B., 2019. "Brexit and the macroeconomic impact of trade policy uncertainty," Journal of International Economics, Elsevier, vol. 117(C), pages 175-195.
    20. Florian Chatagny & Marko Koethenbuerger & Michael Stimmelmayr, 2017. "Introducing an IP license box in Switzerland: quantifying the effects," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 927-961, December.

    More about this item

    Keywords

    Multinational enterprise; Transfer pricing; Profit shifting; Base erosion; Intangible capital; Corporate tax;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001491. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.