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Kimberly A. Clausing - One of the best experts on this subject based on the ideXlab platform.
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the revenue effects of Multinational Firm income shifting
2011Co-Authors: Kimberly A. ClausingAbstract:This article updates Clausing’s prior work on the U.S. government revenue costs resulting from income shifting by Multinational corporations. Extending the analysis to 2008, the author finds that the revenue costs of income-shifting practices have increased in recent years along with the rise in corporate profits of foreign affiliates of U.S. Firms.
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SHOULD TAX POLICY TARGET Multinational Firm HEADQUARTERS
National Tax Journal, 2010Co-Authors: Kimberly A. ClausingAbstract:This paper considers the nature of Multinational Firm headquarters, discussing whether Multinational headquarters are a desirable target of tax policy. Prior literature suggests that Multinational Firms are sensitive to tax policy considerations in headquarters location decisions. Fortune 500 lists of the world’s largest Firms show informative patterns of headquarters location, but there is little systematic relationship between these Firms’ headquarters locations and tax policy variables. Similarly, there is an ambiguous relationship between indicators of country-wide scientific achievement and tax variables. Implications for tax policy are discussed, with an emphasis on the interaction between increasing economic integration and tax policy design.
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Multinational Firm tax avoidance and tax policy
National Tax Journal, 2009Co-Authors: Kimberly A. ClausingAbstract:This paper considers the tax policy consequences of both real and financial types of international tax avoidance, focusing on U.S. Multinational Firms over the period 1982–2004. First, income shifting is examined by estimating the relationship between U.S. affiliate profit rates and foreign country tax rates. Second, the effects of taxes on Multinational Firms’ real operations across countries are considered. Estimates of both financial and real responsiveness to tax rate differences among countries are used to calculate how profits would differ from their current levels absent tax incentives, and thus how U.S. government revenues are affected. Finally, several policy alternatives are discussed.
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international tax avoidance and u s international trade
National Tax Journal, 2006Co-Authors: Kimberly A. ClausingAbstract:In the context of a model of profit–maximizing Multinational Firms, this paper demonstrates three types of influences that international tax avoidance is expected to have on international trade. International tax avoidance affects the location decisions of Multinational Firms as well as the prices and quantities of their intraFirm trade transactions. The paper then investigates hypotheses generated from these theoretical predictions using a panel data set on U.S. Multinational Firm operations. Evidence is found of a substantial and statistically significant relationship between tax avoidance incentives and the pattern of U.S. international trade.
Gaetan Nicodeme - One of the best experts on this subject based on the ideXlab platform.
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thin capitalization rules and Multinational Firm capital structure
IMF Working Papers, 2014Co-Authors: Jennifer L Blouin, Harry Huizinga, Luc Laeven, Gaetan NicodemeAbstract:This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US Multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the internal and total leverage of foreign affiliates of US Multinationals, we find that thin capitalization rules significantly affect Multinational Firm capital structure. Specifically, restrictions on an affiliate’s debt-to-assets ratio reduce this ratio on average by 1.9%, while restrictions on an affiliate’s borrowing from the parent-to-equity ratio reduce this ratio by 6.3%. Also, restrictions on borrowing from the parent reduce the affiliate’s debt-to-assets ratio by 0.8%, which shows that rules targeting internal leverage have an indirect effect on the overall indebtedness of affiliate Firms. The impact of capitalization rules on affiliate leverage is higher if their application is automatic rather than discretionary. Furthermore, thin capitalization regimes have aggregate Firm effects: they reduce the Firm’s aggregate interest expense but lower Firm valuation. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on the capital structure within Multinational Firms, with implications for the Firm’s market valuation.
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thin capitalization rules and Multinational Firm capital structure
Thin Capitalization Rules and Multinational Firm Capital Structure1, 2014Co-Authors: Jennifer L Blouin, Harry Huizinga, Luc Laeven, Gaetan NicodemeAbstract:Abstract: This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US Multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the internal and total leverage of foreign affiliates of US Multinationals, we find that thin capitalization rules affect Multinational Firm capital structure in a significant way. Specifically, restrictions on an affiliate’s debt-to-assets ratio reduce this ratio on average by 1.9%, while restrictions on an affiliate’s borrowing from the parent-to-equity ratio reduce this ratio by 6.3%. Also, restrictions on borrowing from the parent reduce the affiliate’s debt to assets ratio by 0.8%, which shows that rules targeting internal leverage have an indirect effect on the overall indebtedness of affiliate Firms. The impact of capitalization rules on affiliate leverage is higher if their application is automatic rather than discretionary. Furthermore, we show that thin capitalization regimes have aggregate Firm effects: they reduce the Firm’s aggregate interest expense bill but lower Firm valuation. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on the capital structure within Multinational Firms, with implications for the Firm’s market valuation.
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international taxation and Multinational Firm location decisions
Journal of Public Economics, 2012Co-Authors: Salvador Barrios, Harry Huizinga, Luc Laeven, Gaetan NicodemeAbstract:Using a large international Firm-level data set, we examine the separate effects of host and additional parent country taxation on the location decisions of Multinational Firms. Both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries. The impact of parent country taxation is estimated to be sizeable consistent with its international discriminatory nature. Our results show that international double taxation by the parent country – despite the general possibility of deferral of taxation until income repatriation – is instrumental in shaping the structure of Multinational enterprise.
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International Taxation and Multinational Firm Location Decisions
2009Co-Authors: Salvador Barrios, Harry Huizinga, Luc Laeven, Gaetan NicodemeAbstract:Using a large international Firm-level data set, we estimate separate effects of host and parent country taxation on the location decisions of Multinational Firms. Both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries. In fact, the impact of parent country taxation is estimated to be relatively large, possibly reflecting its international discriminatory nature. For the cross-section of Multinational Firms, we find that parent Firms tend to be located in countries with a relatively low taxation of foreign-source income. Overall, our results show that parent-country taxation ? despite the general possibility of deferral of taxation until income repatriation ? is instrumental in shaping the structure of Multinational enterprise.
Fritz C Foley - One of the best experts on this subject based on the ideXlab platform.
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ethnic innovation and u s Multinational Firm activity
2012Co-Authors: Fritz C Foley, William R. KerrAbstract:This paper studies the impact that ethnic innovators have on the global activities of U.S. Firms by analyzing detailed data on patent applications and on the operations of the foreign affiliates of U.S. Multinational .rms. The results indicate that increases in the share of a Firm’s innovation performed by inventors of a particular ethnicity are associated with increases in the share of that Firm’s affiliate activity in countries related to that ethnicity. Ethnic innovators also appear to facilitate the disintegration of innovative activity across borders and to allow U.S. Multinationals to form new affiliates abroad without the support of local joint venture partners.
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regional trade integration and Multinational Firm strategies
Costs and Benefits of Economic Integration in Asia, 2011Co-Authors: Pol Antras, Fritz C Foley, Robert J Barro, Jongwha LeeAbstract:This paper analyzes the e¤ects of the formation of a regional trade agreement on the level and nature of Multinational rm activity. We examine aggregate data that captures the response of U.S. Multinational rms to the formation of the ASEAN free trade agreement. Observed patterns guide the development of a model in which heterogeneous rms from a source country decide how to serve two foreign markets. Following a reduction in tari¤s on trade between the two foreign countries, the model predicts growth in the number of source-country rms engaging in foreign direct investment, growth in the size of a¢ liates that are active in reforming countries both before and after the tari¤ reduction, and an increase in the extent to which the sales of a¢ liates in reforming countries are directed towards other reforming countries. Analysis of rm-level responses to the creation of the ASEAN free trade agreement yields results that are consistent with these predictions. Harvard University and NBER; Harvard Business School and NBER. This paper was prepared for the Workshop on Quantifying the Costs and Bene ts of Regional Economic Integration,held on January 19-20, 2009 in Hong Kong. The statistical analysis of rm-level data on U.S. Multinational companies was conducted at the Bureau of Economic Analysis, U.S. Department of Commerce under arrangements that maintain legal con dentiality requirements. The views expressed are those of the authors and do not reect o¢ cial positions of the U.S. Department of Commerce. We are grateful to Eduardo Morales for superb research assistance and to Robert Barro, Elhanan Helpman, Jong-Wha Lee, Emanuel Ornelas, Bill Zeile, and seminar participants at Harvard and the Asian Development Bank for helpful suggestions.
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regional trade integration and Multinational Firm strategies
National Bureau of Economic Research, 2009Co-Authors: Pol Antras, Fritz C FoleyAbstract:This paper analyzes the eects of the formation of a regional trade agreement on the level and nature of Multinational …rm activity. We examine aggregate data that captures the response of U.S. Multinational …rms to the formation of the ASEAN free trade agreement. Observed patterns guide the development of a model in which heterogeneous …rms from a source country decide how to serve two foreign markets. Following a reduction in taris on trade between the two foreign countries, the model predicts growth in the number of source-country …rms engaging in foreign direct investment, growth in the size of a¢ liates that are active in reforming countries both before and after the tarireduction, and an increase in the extent to which the sales of a¢ liates in reforming countries are directed towards other reforming countries. Analysis of …rm-level responses to the creation of the ASEAN free trade agreement yields results that are consistent with these predictions.
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dividend policy inside the Multinational Firm
Financial Management, 2007Co-Authors: Mihir A Desai, Fritz C Foley, James R HinesAbstract:Three factors significantly influence profit repatriations by U.S. Multinational Firms: tax considerations, domestic financing and investment needs, and agency problems inside Firms. Dividend repatriations are surprisingly persistent and resemble dividend payments to external shareholders. Tax considerations are influential but not decisive. Affiliates whose organizational forms carry differing tax treatments nonetheless feature similar repatriation polices, and certain Firms incur avoidable tax penalties by simultaneously repatriating profits and investing new equity. Parental financing needs also matter, as parents with larger dividend payouts to external shareholders, and highly levered parent companies with profitable domestic investment opportunities, draw on the resources of their foreign affiliates. Finally, affiliates that are incompletely controlled are more likely than others to make regularized dividend payments and to trigger avoidable tax costs through repatriations. Taken together, the results indicate that traditional corporate finance concerns – taxation, costly external finance, and agency problems – are also critical to the internal capital markets of Multinational Firms. JEL Classifications: F23, G31, G35, H25, H87. Mihir A. Desai C. Fritz Foley James R. Hines Jr. Harvard Business School Harvard Business School Department of Economics Baker 265 Baker 265 University of Michigan Soldiers Field Soldiers Field 611 Tappan Street Boston, MA 02163 Boston, MA 02163 Ann Arbor, MI 48109-1220 mdesai@hbs.edu ffoley@hbs.edu jrhines@umich.edu
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the comovement of returns and investment within the Multinational Firm
2004Co-Authors: Mihir A Desai, Fritz C FoleyAbstract:To what degree do increasing levels of financial integration among the world's major economies lead to changes in the synchronization of business cycles? In particular, what role could the dramatic increases in foreign direct investment play in explaining the comovement of aggregate measures of economic activity? This paper sheds light on these questions by providing facts about the scope of foreign direct investment in different countries and the correlations in investment and returns of distinct U.S. Multinational operations around the world. The relevance of a world factor in explaining movements in economic aggregates appears to be uncontroversial. What is less well understood is what factors might account for the high degrees of correlation in macroeconomic variables. High levels of financial and trade integration, as pointed out by Frankel and Rose (1998) and Heathcote and Perri (2002), can theoretically lead to either increasingly idiosyncratic or correlated movements in economic aggregates. The link between financial and trade integration and the synchronization of business cycles remains an open question, with somewhat contradictory evidence emerging from econometric analysis of aggregate data. Rather than filter the economy-wide data in a distinctive way, we approach this question with micro data on the behavior of U.S. Multinational companies (MNCs) and emphasize the role that linkages within these Firms may play in creating global linkages. In order to explore this channel, we pose a series of questions about the patterns of U.S. Multinational activity around the world. First, are the activities of Multinational Firms sufficiently important to local economies to create these linkages? Second, is there any evidence that aggregate measures of Multinational activity comove in a manner that is distinctive
Niels Johannesen - One of the best experts on this subject based on the ideXlab platform.
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taxation and the allocation of risk inside the Multinational Firm
Journal of Public Economics, 2020Co-Authors: Johannes Becker, Niels Johannesen, Nadine RiedelAbstract:Abstract This paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the Multinational Firm. Theoretically, we identify three mechanisms through which corporate taxes may shape the within-Firm allocation of risk: (1) transfer pricing rules requiring risk to be compensated with higher expected returns create incentives to shift risk to low-tax jurisdictions as a means to shift profits; (2) risk-averse owners create incentives to allocate risk to high-tax affiliates to maximize risk-sharing with governments; (3) limited loss offset creates incentives to shift risk to affiliates in other countries. Empirically, we show that Multinational Firms disproportionately allocate risk to low-tax countries and that the key mechanism is the nexus between risk and profits established by transfer pricing rules. Within-Firm differences in risk explain a significant fraction of the well-established correlation between profits and tax rates suggesting that risk shifting is a quantitatively non-negligible channel for profit shifting.
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taxation and the allocation of risk inside the Multinational Firm
2018Co-Authors: Johannes Becker, Niels Johannesen, Nadine RiedelAbstract:This paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the Multinational Firm. Theoretically, we show that unconstrained Firms optimally allocate all their risk to high-tax countries to maximize risk sharing with governments and all their profits to low-tax countries to minimize expected tax payments. However, transfer pricing rules requiring risk to be compensated with a higher expected return introduce a trade-off: the risk sharing motive to allocate risk to high-tax countries must be balanced against a pro.t shifting motive to allocate risk to low-tax countries. Empirically, we consistently find that Multinational Firms disproportionately allocate risk to low-tax countries. This suggests that the intra-Firm allocation of risk and profits is effectively constrained by transfer pricing rules and that the profit shifting motive dominates the risk sharing motive. Finally, we show that within-Firm differences in risk can account for a significant fraction of the well-established correlation between profits and tax rates suggesting that risk shifting is a quantitatively important channel for profit shifting.
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Taxing the Financially Integrated Multinational Firm
Journal of Public Economic Theory, 2016Co-Authors: Niels JohannesenAbstract:This paper develops a theoretical model of corporate taxation in the presence of financially integrated Multinational Firms. Under the assumption that Multinational Firms at least partly use internal loans to finance foreign investment, we find that the optimal corporate tax rate is positive from the perspective of a small, open economy. This finding contrasts the standard result that the optimal source based capital tax is zero. Intuitively, to the extent that Multinational Firms finance investment in country i with loans from affiliates in country j, the burden of corporate taxes in the latter country partly fall on investment and thus workers in the former country. This tax exporting mechanism introduces a scope for corporate taxes, which is not present in standard models of international taxation. Accounting for the internal capital markets of Multinational Firms thus represents a way to resolve the tension between standard theory predicting zero capital taxes and the casual observation that countries tend to employ corporate taxes at fairly high rates.
Nadine Riedel - One of the best experts on this subject based on the ideXlab platform.
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taxation and the allocation of risk inside the Multinational Firm
Journal of Public Economics, 2020Co-Authors: Johannes Becker, Niels Johannesen, Nadine RiedelAbstract:Abstract This paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the Multinational Firm. Theoretically, we identify three mechanisms through which corporate taxes may shape the within-Firm allocation of risk: (1) transfer pricing rules requiring risk to be compensated with higher expected returns create incentives to shift risk to low-tax jurisdictions as a means to shift profits; (2) risk-averse owners create incentives to allocate risk to high-tax affiliates to maximize risk-sharing with governments; (3) limited loss offset creates incentives to shift risk to affiliates in other countries. Empirically, we show that Multinational Firms disproportionately allocate risk to low-tax countries and that the key mechanism is the nexus between risk and profits established by transfer pricing rules. Within-Firm differences in risk explain a significant fraction of the well-established correlation between profits and tax rates suggesting that risk shifting is a quantitatively non-negligible channel for profit shifting.
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taxation and the allocation of risk inside the Multinational Firm
2018Co-Authors: Johannes Becker, Niels Johannesen, Nadine RiedelAbstract:This paper provides the first theoretical and empirical analysis of how taxation shapes the joint allocation of risk and profits inside the Multinational Firm. Theoretically, we show that unconstrained Firms optimally allocate all their risk to high-tax countries to maximize risk sharing with governments and all their profits to low-tax countries to minimize expected tax payments. However, transfer pricing rules requiring risk to be compensated with a higher expected return introduce a trade-off: the risk sharing motive to allocate risk to high-tax countries must be balanced against a pro.t shifting motive to allocate risk to low-tax countries. Empirically, we consistently find that Multinational Firms disproportionately allocate risk to low-tax countries. This suggests that the intra-Firm allocation of risk and profits is effectively constrained by transfer pricing rules and that the profit shifting motive dominates the risk sharing motive. Finally, we show that within-Firm differences in risk can account for a significant fraction of the well-established correlation between profits and tax rates suggesting that risk shifting is a quantitatively important channel for profit shifting.