The Differential Effects of Bilateral Tax Treaties

Blonigen, Bruce A.; Oldenski, Lindsay; Sly, Nicholas

doi:10.1142/9789813277014_0007

Cited by 16 publications

(32 citation statements)

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“…Only in the period of BTT introduction and later do treated and non-treated firms' employment growth rates diverge, as indicated by the jump in period 0, in which the BTT was implemented, and growth in the effects over the subsequent years. These results are consistent with prior evidence finding that increased multinational activity occurs only after BTTs enter into force (Blonigen, Oldenski, and Sly 2014), and show that BTT assignment was uncorrelated with existing firm performance.…”

Section: Background and Datasupporting

confidence: 91%

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The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies

Kovak¹,

Oldenski²,

Sly³

2017

RWP

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Estimating the causal effect of offshoring on domestic employment is difficult because of the inherent simultaneity of multinational firms' domestic and foreign affiliate employment decisions. In this paper, we resolve this identification problem using variation in Bilateral Tax Treaties (BTTs), which reduce the effective cost of offshore activity by mitigating double taxation. We derive a panel difference-indifferences research design from a standard model of multinational firms, demonstrating the simultaneity problem and showing how to resolve it using BTTs as an instrument for offshore employment. We confirm that new treaty implementation is uncorrelated with existing employment trends, and use Bureau of Economic Analysis data on U.S. multinational firms to measure the domestic employment effects of offshore activity. Overall, we find modest positive effects of offshore activity on domestic employment. A 10 percent BTTinduced increase in affiliate employment drives a 1.8 percent increase in employment at the U.S. parent firm, with smaller effects at the industry and regional levels. Underlying these results is substantial heterogeneity based on offshoring margin and firm organizational structure. For example, increased foreign affiliate activity in vertically oriented multinational firms drives declining employment among non-multinationals in the same industry, and multinational firms opening new affiliates exhibit much smaller domestic employment growth than those expanding existing affiliates. Throughout the analysis, OLS estimates are much larger than the IV estimates, consistent with upward simultaneity bias. Overall, our results indicate that greater offshore activity raises net employment by U.S. firms, albeit with underlying job loss and reallocation of workers.

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Section: Background and Datasupporting

confidence: 91%

“…17 See Carr, Markusen, and Maskus (2001), di Giovanni (2005), and Blonigen, Oldenski, and Sly (2014) for papers motivating these controls.…”

Section: Background and Datamentioning

confidence: 99%

The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies

Kovak¹,

Oldenski²,

Sly³

2017

RWP

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“…The data have been highlighted by OECD (2015b) as some of the current best practices in using available data for BEPS analysis and have been used previously for research. For example, Blonigen, Oldenski, and Sly () use the confidential firm‐level data to estimate the impact of bilateral tax treaties on investment behaviour of US multinational firms, allowing for differential effects of treaties across sectors that use homogeneous versus differentiated inputs with varying intensity; while Stewart () and Clausing () use the aggregated data to compare the effective corporate rates, and shares of total foreign income and employment, respectively. Sullivan () uses the BEA data to highlight a dramatic shift of profits to few jurisdictions, whereas Zucman () employed different data sets to show the same.…”

Section: Methodsmentioning

confidence: 99%

Measuring misalignment: The location of US multinationals’ economic activity versus the location of their profits

Cobham

Jánský

2018

Development Policy Review

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The authors of this paper grant to the IDS and the ICTD a perpetual, irrevocable, worldwide, royalty-free, non-exclusive licence, or sublicence, to reproduce, communicate to the public, use, adapt, publish, distribute, display and transmit the work in any and all media, and to sublicense others (including the Crown) to reproduce, communicate to the public, use, adapt, publish, distribute, display and transmit the work in any and all media, for non-commercial purposes and with appropriate credit being given to the authors and ICTD funders.A catalogue record for this publication is available from the British Library.This work has been licensed by the copyright holder for distribution in electronic format via any medium for the lifetime of the OpenDocs repository for the purpose of free access without charge and can be found at http://opendocs.ids.ac.uk/opendocs/ Also Measuring Misalignment: the Location of US Multinationals' Economic Activity Versus the Location of their Profits Alex Cobham and Petr Janský SummaryA major international effort -the OECD Base Erosion and Profit Shifting (BEPS) initiative -aims to reduce the extent of misalignment between the profits of multinational groups, and the location of their real economic activity. Recent research using balance sheet data has shown major misalignments, with a number of small jurisdictions capturing a tax base disproportionate to their economic activity, but has also revealed the limitations of available balance sheet data for lower-income countries. This paper uses survey data on the international operations of USheadquartered multinational groups to expand the research to a broader group of host countries (albeit for only one home economy), and confirms major misalignments of profit. A small number of 'profit-haven' jurisdictions are seen to have captured a disproportionate share of total profits, resulting in serious disadvantages for most G20 countries, regardless of income level.

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“…Positive effects on investment were more commonly found for treaties between developed countries than those involving a developing country. Since then, the balance has tipped towards studies finding positive effects through the use of more comprehensive bilateral investment data (Barthel, Busse, & Neumayer, ; Lejour, ) and foreign affiliate microdata (Blonigen, Oldenski, & Sly, ; Davies, Norbäck, & Tekin‐Koru, ; Egger & Merlo, ).…”

Section: The Questionable Case For Tax Treatiesmentioning

confidence: 99%

When Do Developing Countries Negotiate Away Their Corporate Tax Base?

Hearson

2018

J of Intl Development

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Developing countries have concluded thousands of bilateral tax treaties, which restrict their 'taxing rights' over international investment. Qualitative case studies of these negotiation outcomes emphasize power politics, knowledge asymmetries and negotiating capability in the eventual distribution of taxing rights between signatories, yet such insights are absent from crosscountry quantitative work. This paper bridges the gap by replicating two quantitative studies, introducing new data on countries' ability to mobilize tax revenue and the outcomes of tax treaty negotiations. It provides statistical support for the insights from qualitative research. The size of a government's revenue base, and its reliance on corporate tax, might affect the salience of the revenue sacrifice in policy makers' minds. These variables influence the likelihood of signing a tax treaty and the particular concessions made. Power asymmetries between signatories lead to more unequal distributions of taxing rights away from developing countries, in contrast to the findings of earlier studies. Developing countries also become better negotiators as they gain experience.

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The Differential Effects of Bilateral Tax Treaties

Cited by 16 publications

References 0 publications

The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies

The Labor Market Effects of Offshoring by U.S. Multinational Firms: Evidence from Changes in Global Tax Policies

Measuring misalignment: The location of US multinationals’ economic activity versus the location of their profits

When Do Developing Countries Negotiate Away Their Corporate Tax Base?

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