RESEARCH AT THE RSIT


The RSIT conducts research on policy-relevant topics in international taxation and cross-border activities of multinational companies. Below you will find a short summary of the most recent research projects. Please click on the right to get a full list of our publications and to download papers from our working paper series.

Recent Studies

The Effects of the Tax Cuts and Jobs Act on the Tax-Competitiveness of Multinational Corporations

We use the 2017 US tax reform to learn about the tax-competitiveness of US multinational corporations (MNCs) relative to their international peers. Matching on the propensity score, we compare pairs of similar US and European firms listed on the S&P500 or StoxxEurope600 in a difference-indifferences setting. Our results suggest significantly lower effective tax rates of US MNCs compared to their European competitors after the US tax reform. Additional tests show (i) that US MNCs have gained substantially in what we call tax-competitiveness, (ii) that the reform effect is more pronounced for MNCs with a high share of domestic activity, and (iii) that the tax reform did not change the international tax planning behavior of US MNCs. We provide evidence that US MNCs already successfully engaged in international tax planning prior to the reform, and this behavior is unchanged after the tax reform.

(RSIT Working Paper 04/2022)

Are Consumers Paying the Bill? How International Tax Competition Affects Consumption Taxation

This paper empirically investigates whether governments are substituting from corporate to consumption taxation due to tax competition using a novel self-collected data set of corporate and consumption tax regime information. I estimate the slope of the tax policy reaction function between corporate and consumption tax rates exploiting the cross-sectional interdependence of corporate tax rates for an instrumental variable approach. Additionally, I  analyze the rate-revenue relationship of both tax instruments to evaluate the overall revenue implications of corporate tax competition. I find that, on average, a one percentage point decrease in the corporate tax rate leads to a 0.35 percentage point increase in the consumption tax rate. The rate-revenue relationship of both corporate and consumption tax rates follows an inverted U-shape. Furthermore, governments can fully compensate for revenue losses from tax competition by substituting to consumption taxation. These results indicate that the debate on corporate tax competition may overstate efficiency considerations and underestimate equity concerns. 

(RSIT Working Paper 03/2022)

Home or Away? Profit Shifting with Territorial Taxation

In 2009, the United Kingdom abolished the taxation of profits earned abroad and introduced a territorial tax system. Under the territorial system, firms have strong incentives to shift profits abroad. Using a difference-in-differences research design, we show that profits of UK subsidiaries in low-tax countries increased after the reform compared to subsidiaries of non-UK multinationals in the same countries by an average of 2 percentage points. This increase in profit shifting also leads to increases in measured productivity of the foreign affiliates of UK multinationals of between 5 and 9 percent.

 

(RSIT Working Paper 02/2022)

The (non-)Neutrality of Value-Added Taxation

This paper employs a structural gravity model and novel value-added tax (VAT) regime data to investigate the impact of VAT rate changes on imports and domestic production of final goods. We demonstrate that the VAT is both non-neutral and discriminatory. A one percentage point VAT increase reduces aggregate imports and internal trade by 3.05% and implies a 5.4 to 7.9% reduction of foreign imports relative to internal trade. Based on these results we conduct a counterfactual equilibrium analysis and illustrate that VAT rate changes imply substantial welfare effects for an average country in the European Union.

(RSIT Working Paper 01/2022)

Risky Business: Policy Uncertainty and Investment

We generalize previous results on the effect of non-linear taxation on investment, showing that investment decisions are distorted when tax rates are correlated with marginal productivity. We demonstrate this result in a simple theoretical framework, which can also explain some well known results on the effects of tax progressivity and tax asymmetry on investment. Time-series estimates for the post-WW2 era suggest a negative correlation between effective tax rates and total factor productivity in the U.S., yielding an effect on firm investment equivalent to an investment subsidy of around 1 percent.

 

(RSIT Working Paper 03/2021)