How would regulating multinational profit shifting affect the economy?

Multinational enterprises (MNEs) shift large portions of their profits to tax havens like Ireland and Bermuda, costing governments in their home countries hundreds of billions of dollars per year in tax revenue. The OECD and G20 governments have recently agreed upon a historic international policy framework designed to reduce profit shifting, which will impose a 15% global minimum corporate tax rate and reallocate the right to tax 25% of MNEs' profits to the countries in which they sell their products. In our working paper, “A Macroeconomic Perspective on Taxing Multinational Enterprises,” Sebastian Dyrda, Guangbin Hong, and I argue that this framework will achieve its goal, but it will also reduce MNEs' incentives to invest in intangible capital, which will cause the global economy to shrink.

How would tax evasion shape the effects of higher capital taxes?

Rising wealth inequality is evoking calls to tax capital more heavily, but concerns abound that the wealthy would respond by concealing more of their assets offshore. In “Tax Evasion and Capital Taxation,” (recently accepted by the Journal of Political Economy), Shahar Rotberg and I build a general equilibrium model of offshore tax evasion to analyze how these policies would affect the economy. But for evasion, raising capital income taxes and taxing wealth would reduce inequality and could increase tax revenue substantially. In reality, however, inequality would rise and tax revenues would rise modestly or even fall.

About me

I am an associate professor in the University of Toronto economics department. I hold a B.A. in mathematical economics from Pomona College and a Ph.D. in economics from the University of Minnesota. My research uses quantitative models to answer questions in open-economy macro, trade, and public finance. Some of my recent papers study the contribution of trade deficits to declining goods-sector employment in the United States, the cost of uncertainty about Brexit, and the macroeconomic consequences of offshore tax evasion.

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