This paper extends the forward-looking effective tax rates of Devereux and Griffith (1998) to model targeted tax reforms and anti-avoidance measures. To implement tax reforms or tax measures which depend on firm-characteristics the effective tax rates are calculated using firm characteristics like in Egger et al. (2009). The propsed extensions aim to model interest barriers, thin capitalisation and CFC rules as well as considering loss consoldiation and loss carry forward. Comparing the results to the standard bilateral effective tax rates shows that considering firm-variation can substantially alter the ranking of the bilateral tax burden.

This paper investigates how multinational enterprises (MNEs) strategically reallocate risk among their affiliates in response to the introduction of transfer pricing regulations, using the implementation of transfer pricing documentation rules in France in 2010 as a quasi-natural experiment. Using administrative data, we examine the shifting of several risk types outlined in the OECD Transfer Pricing Guidelines, including market risk, credit risk, and R&D risk. Our analyses suggest that affected MNEs allocate less market and credit risk to French affiliates and consequently more risk to affiliates in low-tax countries after the reform. As risk allocation goes hand in hand with shifting of real activity, we find a decrease in the value of fixed and intangible assets in France following the reform. Our study provides insights into the effectiveness of transfer pricing regulations and sheds light on how MNEs adapt their corporate structures to facilitate profit shifting through transfer pricing mechanisms.

Using a stacked difference-in-differences design, we look into the profit shift-ing responses of multinational entities (MNEs) on double taxation treaties’ (DTT) arbitra-tion clauses. Based on bilateral data on MNE financials, trade flow, and foreign direct in-vestment (FDI), we find that the introduction of an arbitration clause in existing DTTs has, on average, a significant impact on profit shifting. In line with this, the introduction of arbitration leads to an increase in the trade value-added for affiliates in low-taxed coun-tries. The effect is stronger for affiliates in countries having a larger exposure to tax avoid-ance and lower statutory tax rates. In contrast, the introduction of an arbitration clause weakens the inflow of FDI into lower-taxed affiliated companies and increases profit dis-tributions. A series of additional tests suggest that our results are robust

We incorporate policy competition into a quantitative spatial model. The interdependence of policymaking among a network of counties is characterized by 3109X3109 endogenous bilateral linkages. These linkages are summarized by ``policy impact'' ---the effect of a jurisdiction’s policy on other jurisdictions. Applying our model to local sales taxes, we find that limits to tax competition increase welfare, albeit heterogeneously, and that ignoring endogenous policies underestimates welfare gains by 6%. Ranking counties by the magnitude of their policy impact, we show that interventions targeting high-policy impact jurisdictions raise welfare by six times more than those targeting low-tax jurisdictions.impact. Then, we show interventions targeting high policy impact jurisdictions raise welfare by 6 times more than targeting low-tax jurisdictions.

The Middle East is often perceived as region with rentier economies and uncompetitive markets. Evidence of market power in the region however is scant. In this paper, we ask the following two questions: Is the Middle East uniquely uncompetitive? Can tax policy be a way to even the playing field? Using comprehensive firm-level data from Compustat between 2004 and 2022 and employing two methods for estimating markups (production function and cost-share approach). We document that market power among listed firms in the Middle East is higher than in the US, but on a downward trend. We find that the value-added tax (VAT) introduced by some Gulf states from 2018 to 2022 resulted in a reduction of market power, an unintended benefit beyond increasing fiscal space. While policymakers should continue to use available antitrust levers to achieve economic efficiency, VAT could be considered as an alternative instrument.

The present study examines the role of the congestion technology in a symmetric tax competition setting with a productive public good and with unemployment. Considering two well-known specifications of congestion, the congestion technology can be shown to be crucial for the analysis of efficiency in both public provision and private utilization of a congestible public input in the decentralized equilibrium: For the specification of decreasing marginal congestion, efficiency in the non-cooperative equilibrium with capital and lump-sum taxation will depend alone on the magnitude of the production and congestion elasticities. In contrast, factor prices and corresponding employment levels are, in addition, important to determine whether both provision and utilization levels of the public input are efficient in case of increasing marginal congestion. Numerical analysis is employed to supplement the results of the theoretical and graphical analysis and to further compare the social optimum to the decentralized equilibria.

We study firm responses to local policies through a survey experiment, providing randomized information on the competitiveness of business tax rates and highway access in their headquarters' municipality. Firms often misperceive local policy competitiveness, especially for tax rates. Investment decisions respond asymmetrically to tax competitiveness. Positive tax rank information reduces investment intentions in neighboring municipalities. Compared to this, negative tax news increases relocation plans. However, most firms receiving bad news plan to continue investing in their headquarters' municipality, indicating home bias. These effects are strongest for mobile firms and corporations. Negative infrastructure news lowers location satisfaction but does not influence investment.