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.
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.
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.
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.
This paper studies the spillover effects of an anti-corruption measure. Using data on the universe of procurement contracts of Italian municipalities, the paper documents two responses. First, in sectors that are more vulnerable to corruption, neighboring municipalities increase the number of contracts smaller than a threshold that involves less stringent evidentiary requirements, making it more challenging to prove an infraction. In particular, neighboring municipalities avoid stricter procurement rules by splitting large projects into multiple below-threshold contracts. This response is stronger in municipalities with more senior and educated employees. Second, neighboring municipalities renegotiate fewer contracts of public works, a practice that signals the existence of corruption. Together, these results suggest that municipalities neighboring one where an anti-corruption measure is implemented respond by exploiting less monitored margins of the procurement activity, and engaging less in activities that signal potential irregularities.
This paper studies the effect of an increase in import competition on informality along two margins. I consider the extensive margin, where workers are hired by unregistered employers and the intensive margin, where even though jobs are carried out in registered firms, employees are off the books. Peru's relentless informal employment and its unprecedented trade-driven growth provides an ideal case study. Using a rich household survey, I find that exposure to trade impacts on informality through two competing and contrasting mechanisms. On the one hand, extensive-informal employment declines as unregistered employers shrink or exit due to their low productivity. On the other hand, intensive-informal employment rises as registered employers reduce costs by hiring informal workers. Furthermore, results suggest that the intensive margin drives the overall effect. Hence, I find that trade liberalisation increases informality.