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Hidden Profits, Lost Jobs? Tax Havens and Employment Decisions

Author

Listed:
  • Ronald B. Davies
  • Margarita Lopez-Forero
  • Benjamin Michallet
  • Johannes Scheuerer

Abstract

Despite their advantages, multinational enterprises (MNEs) receive significant criticism, particularly with regard to offshoring jobs and shifting profits abroad to avoid taxation. Using administrative data for the universe of Norwegian and French firms and workers, we link these two issues by documenting a negative relation between MNE investment in a tax haven and employment in the high-tax country. In particular, exploiting the 2006 European Court of Justice (ECJ) decision on the Cadbury-Schweppes case which upheld the use of EU tax havens, we are able to establish a causal link in which tax haven use lowers domestic employment by 6%. Heterogeneity analyses reveal that the effects are mainly concentrated among high-skilled workers. We further link the employment changes to the substance requirements mandated by the ECJ's ruling and the secrecy inherent to tax havens.

Suggested Citation

  • Ronald B. Davies & Margarita Lopez-Forero & Benjamin Michallet & Johannes Scheuerer, 2026. "Hidden Profits, Lost Jobs? Tax Havens and Employment Decisions," CESifo Working Paper Series 12464, CESifo.
    • Handle: RePEc:ces:ceswps:_12464
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    References listed on IDEAS

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    1. Annette Alstadsæter & Julie Brun Bjørkheim & Ronald B. Davies & Johannes Scheuerer, 2022. "Pennies from Haven: Wages and Profit Shifting," Working Papers 002, EU Tax Observatory.
    2. A. Alstadsӕter & R. B. Davies & Mathieu Parenti & Farid Toubal, 2023. "The Real Effects of of Tax Havens," Working Papers hal-04439294, HAL.
    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. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70(5), pages 1-9.
    5. Laura Alfaro & Maggie X. Chen, 2018. "Selection and Market Reallocation: Productivity Gains from Multinational Production," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 1-38, May.
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    8. A. Alstadsӕter & R. B. Davies & Mathieu Parenti & Farid Toubal, 2023. "The Real Effects of of Tax Havens," Working Papers hal-04439294, HAL.
    9. Arulampalam, Wiji & Devereux, Michael P. & Maffini, Giorgia, 2012. "The direct incidence of corporate income tax on wages," European Economic Review, Elsevier, vol. 56(6), pages 1038-1054.
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    Keywords

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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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