Thread by @J_C_Suarez

Check out my new NBER Working Paper: "Unintended Consequences of Eliminating Tax Havens"

NBER: nber.org/papers/w24850
Ungated: jcsuarez.com/Files/Suarez_S…

Short summary in 5 tweets below

Main point is that limits to profit shifting increase the effective cost of investing in the US since multinationals can’t shift profits to tax havens.

This figure shows limits to profit shifting raise cost of investing from \tilde \rho_0 to \tilde \rho_1:

We study a policy change that limited profit shifting through Puerto Rico (Section 936)

Repealing Section 936 raised taxes of exposed US Multinationals by 10pp

Before repeal, these firms hired millions of workers in continental US & invested 16% of all investment in compustat

Main result #1: Affected firms reduce US activity. Relative to similar firms, exposed firms responded by:

(i) lowering global investment by 23%

(ii) increasing share of investment abroad by 17.5%

(iii) reducing US employment by 9.1%

Main result #2: Firm-level effects are amplified in local labor markets.

More exposed local labor markets experienced long-lasting economic declines:

(i) Lower employment and income growth

(ii) Lower wages and housing values

(iii) More dependence on government transfers

Please see paper for more on robustness, placebo checks, and implications for the Tax Cuts and Jobs Act (e.g GILTI)!

Comments and suggestions are always welcome!