Unintended Consequences of Eliminating Tax Havens

This paper shows that eliminating firms' access to tax havens has unintended consequences for economic growth. The authors analyze a policy change that limited profit shifting for US multinationals, and show that the reform raised the effective cost of investing in the US. Exposed firms respond by reducing global investment and shifting investment abroad - which lowered their domestic investment by 38% - and by reducing domestic employment by 1.0 million jobs. The authors then show that the costs of eliminating tax havens are persistent and geographically concentrated, as more exposed local labor markets experience declines in employment and income growth for over 15 years. This paper discusses the implications of these results for other efforts to limit profit shifting, including new taxes on intangible income in the Tax Cuts and Jobs Act of 2017.

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By Serrato; Juan Carlos Suarez, posted on Wednesday July 25, 2018
Tax Reform
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