Abstract

https://ssrn.com/abstract=2598437
 


 



The Effect of Tax Havens on Host Country Welfare


Thomas A. Gresik


University of Notre Dame - Department of Economics and Econometrics

Dirk Schindler


Norwegian School of Economics (NHH); CESifo (Center for Economic Studies and Ifo Institute)

Guttorm Schjelderup


Norwegian School of Economics (NHH) - Department of Business and Management Science

April 24, 2015

NHH Dept. of Business and Management Science Discussion Paper No. 2015/19

Abstract:     
Multinational corporations can shift income into low-tax countries through transfer pricing and debt financing. While most developed countries use thin capitalization rules to limit the extent to which a subsidiary can be financed with internal debt, a number of developing countries do not. In this paper, we analyze the effect on FDI and host country welfare of thin capitalization rules when multinationals can also shift income via transfer prices. We show that while permissive thin capitalization limits may be needed in developing countries to attract FDI, the amount of debt financing allowed by the permissive limits facilitates more aggressive transfer pricing and results in lower host country welfare.

Number of Pages in PDF File: 36

Keywords: Tax havens, welfare, multinational corporations, FDI, transfer pricing

JEL Classification: F23, H25, O10


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Date posted: April 25, 2015  

Suggested Citation

Gresik, Thomas A. and Schindler, Dirk and Schjelderup, Guttorm, The Effect of Tax Havens on Host Country Welfare (April 24, 2015). NHH Dept. of Business and Management Science Discussion Paper No. 2015/19. Available at SSRN: https://ssrn.com/abstract=2598437 or http://dx.doi.org/10.2139/ssrn.2598437

Contact Information

Thomas A. Gresik
University of Notre Dame - Department of Economics and Econometrics ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
Dirk Schindler
Norwegian School of Economics (NHH) ( email )
Helleveien 30
Bergen, 5045
Norway

CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany

Guttorm Schjelderup (Contact Author)
Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )
Helleveien 30
Bergen, NO-5045
Norway
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