The Real Effects of US Tax Arbitrage by Foreign Multinational Firms

45 Pages Posted: 16 Nov 2015 Last revised: 27 Oct 2018

See all articles by James F. Albertus

James F. Albertus

Carnegie Mellon University - David A. Tepper School of Business

Date Written: October 2018

Abstract

Using confidential microdata, I document that foreign multinational firms’ income shifting out of the United States is positively associated with their real economic activity in the US. When these firms face greater restrictions on income shifting – resulting from the staggered implementation of 16 “Controlled Foreign Corporation” laws abroad – they scale back US employment and investment, and are less likely to establish US operations. Given the large role of foreign-owned businesses in the American economy, the findings highlight the exposure of US economic activity to regulatory changes abroad. Foreign direct investment plays a key role in transmitting policy across borders.

Keywords: multinational firms, tax avoidance, employment, investment

JEL Classification: F23, H26, M51, F21

Suggested Citation

Albertus, James F., The Real Effects of US Tax Arbitrage by Foreign Multinational Firms (October 2018). Available at SSRN: https://ssrn.com/abstract=2691065 or http://dx.doi.org/10.2139/ssrn.2691065

James F. Albertus (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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