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Session Overview
Session
C01: Tax Havens
Time:
Wednesday, 18/Aug/2021:
2:15pm - 3:45pm


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Presentations
2:15pm - 2:37pm

Tax Competition on the Extensive and Intensive Margins

David R Agrawal1, Tidiane Ly2, Raphaël Parchet2

1University of Kentucky; 2Università della Svizzera italiana (USI), Switzerland

This paper studies the welfare implications of strategic tax setting in the presence of tax havens. We develop a tax competition model in which jurisdictions first decide whether or not to levy a tax and then decide the optimal tax rate to compete for mobile factors. We show that decentralized tax rates can be too low or too high depending on the number of non-adopting jurisdictions. In particular, taxes are too low if the number of tax havens is low and too high if the number of tax haven is high. We apply our model to U.S. county sales taxes where 40\% jurisdictions do not levy a sales tax. We find that tax rates are up to $33\%$ too low and the number of tax havens is up to $47\%$ too high compared to the social optimum.

Agrawal-Tax Competition on the Extensive and Intensive Margins-154.pdf


2:37pm - 3:00pm

Effects of International Tax Provisions on Domestic Labor Markets

Daniel Garrett1, Eric Ohrn2, Juan Carlos Suarez Serrato3

1Wharton School, United States of America; 2Grinell College, United States of America; 3Duke University, United States of America

We study the domestic labor markets effects of two historical, but highly applicable,US international tax provisions. The first provision, “check-the-box,” (CTB) decreased effective tax rates abroad by increasing the ability of MNEs to avoid taxation on passive income. The second provision, the 2004 repatriation “holiday,” (RH) decreased the tax costs of repatriating foreign earnings by 85%. To study the effects of each provision, we use a difference-in-differences event study framework to compare employment, earnings,and earnings per worker in the US counties most exposed to MNEs that benefited from CTB and most exposed to repatriations made under the holiday to the same outcomes in counties exposed to two matched control groups of US corporations, one for each policy.

Garrett-Effects of International Tax Provisions on Domestic Labor Markets-364.pdf


3:00pm - 3:22pm

Tax Competition in Presence of Profit Shifting.

Steeve Mongrain1, David Oh2, Tanguy van Ypersele3

1Simon Fraser University, Canada; 2Canada Mortgage and Housing Corporation; 3Aix-Marseille University

The popular view is that governments should crack down on tax avoidance by multinational firms. In this paper, we analyze how anti-profit-shifting policies influence fiscal competition. Governments commit to profit shifting control effort and then set taxes on capital. Equilibrium tax rates are determined by the elasticities of the two components: profit shifting and capital mobility. Anti-profit-shifting policies decrease the elasticity of the first but increase the elasticity of the second, so that the impact of these policies on the equilibrium of the tax game is ambiguous. We show that there are cases in which laxer policies increase all equilibrium tax rates and that the country announcing laxer profit shifting policies may gain. It appears that there is not always a pure strategy equilibrium in such a fiscal competition game. We construct a mixed strategy equilibrium when the pure strategy equilibrium does not exist.

Mongrain-Tax Competition in Presence of Profit Shifting-283.pdf


3:22pm - 3:45pm

Do Multinational Firms use Tax Havens to the Detriment of Other Countries?

Dhammika Dharmapala

University of Chicago, United States of America

The use of tax havens by multinational corporations (MNCs) has attracted increasing attention and scrutiny in recent years. This paper provides an exposition of the academic literature on this topic. It begins with an overview of the basic facts regarding MNCs’ use of havens, which are consistent with the location of holding companies, intellectual property, and financial activities in havens. However, there is also evidence of significant frictions that limit MNCs’ use of havens. These limits can be attributed to nontax frictions (such as the legal and business environment in different jurisdictions), to tax law provisions limiting profit shifting, and to the costs of tax planning. There is evidence consistent with the relevance of each of these channels. The paper also argues that nonhaven countries have available a range of powerful tax law instruments to neutralize the impact of MNCs’ use of havens.

Dharmapala-Do Multinational Firms use Tax Havens to the Detriment-207.pdf


 
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