Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical summaryThe public debate on tax base erosion by multinational enterprises (MNEs) has been stirred up by strikingly low effective tax rates (ETRs) of some very prominent US-American information technology companies. Going beyond such anecdotal insights, numerous empirical studies provide general evidence for profit shifting by confirming a negative correlation between reported parent or subsidiary profits and local tax levels. Given the current state of research, the existence of profit-shifting behavior is largely unquestioned. Nevertheless, there is much lower a consensus about the scale of the profit-shifting activity and its responsiveness to the crosscountry tax differential allowing for tax arbitrage.The objective of this paper is to add to the current state of research and debate in two ways.First, we provide a consensus estimate of the size of the tax-rate elasticity of reported parent or subsidiary profits and explain which factors determine the variation in previous empirical findings. Second, we investigate which of the profit-shifting channels generally distinguished, financial structures or transfer pricing, is more important. To this end, we conduct a meta-analysis of the complete literature in both public economics and accounting research that estimates the tax sensitivity of interest.On the basis of the existing evidence, we predict a tax semi-elasticity of pre-tax profit of about 0.8, in absolute terms. Hence, reported profits decrease by about 0.8% if the international tax differential that can be exploited for tax arbitrage increases by 1 percentage point. Moreover, our findings suggest that transfer pricing and licensing, not inter-company debt, is indeed the dominant profit-shifting channel. Das Wichtigste in Kürze ABSTRACTThis paper provides a quantitative review of the empirical literature on profit-shifting behavior of multinational firms. We synthesize the evidence from 25 studies and find a substantial response of profit measures to international tax rate differentials. Accounting for misspecification biases by means of meta-regressions, we predict a tax semi-elasticity of subsidiary pre-tax profits of about 0.8. Moreover, we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel. Our results suggest that transfer pricing and licensing are the dominant profit-shifting channel.
Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:http://ftp.zew.de/pub/zew-docs/dp/dp11075.pdf Non-Technical SummaryTheoretical arguments for the tax sensitivity of capital structures are convincing. Empirical findings instead have for years been rather weak. Even today, despite a surge of studies providing point estimates for the tax effect on corporate capital structure, the empirical evidence remains ambiguous. Surprisingly, however, no study has ever quantitatively examined the factors which determine the variation in empirical evidence.The contribution of this paper is to fill this gap. It provides a comprehensive quantitative review of the empirical literature on the impact of taxation on corporate debt financing. Synthesizing the evidence from over 1,000 primary estimates extracted out of 46 studies, we find that this impact is indeed quite substantial. Our results suggest that, in particular, the tax rate proxy used for identification determines the outcome of primary analyses. More refined measures like the simulated marginal tax rate suggested by Graham (1996Graham ( , 1999) avoid a significant downward bias in estimates for the debt response to tax. Moreover, we find that debt characteristics, the econometric specification, the set of control-variables, and publication selection in primary studies exert significant influence on estimated tax effects. Accounting for all potential misspecification biases by means of meta-regression analyses, we predict a marginal tax effect on the debt ratio of 0. ABSTRACTThis paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing. Synthesizing the evidence from 46 previous studies, we find that this impact is substantial. In particular, the tax rate proxy determines the outcome of primary analyses. Measures like the simulated marginal tax rate (Graham (1996a)) avoid a downward bias in estimates for the debt response to tax. Moreover, debt characteristics, econometric specifications, and the set of control-variables affect tax effects. Accounting for misspecification biases by means of meta-regressions, we predict a marginal tax effect on the debt ratio of 0.3.
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. , we analyze the role of economic and financial openness as well as tax competition while allowing for dynamic adjustment to shocks and period-specific as well as country-specific effects. While openness does not seem to be systematically related to corporate tax rates, our findings suggest that countries compete over statutory tax rates. In contrast, we do not find competition over effective marginal rates. While the short-run impact of tax competition on corporate tax rates seems to be modest, the interplay of tax competition and a sluggish adjustment of tax rates over time implies that permanent shocks to individual countries have substantial long-run effects on equilibrium tax levels in all countries. Terms of use: Documents inJEL Code: H20, H25, H71.
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