(1/6) I have posted a research note titled “How Big is Profit Shifting?” It is available here: papers.ssrn.com/sol3/papers.cf…
This note responds to a recent critique that argues that profit shifting is much smaller than we thought. In short, it is not.
This note responds to a recent critique that argues that profit shifting is much smaller than we thought. In short, it is not.
(2/6) Plausible benchmark estimates from recent IRS country-by-country data indicate that profit shifting in 2016 was reducing the US corporate tax base by about 35 percent, costing the US government more than $100 billion/year at 2016 tax rates. See Table 3 and surrounding text.
(3/6) The critique argued that a large portion of the profit shifting literature is overstating the magnitude of profit shifting, but the method that the authors use to challenge this literature opens important unanswered questions.
(4/6) For example, experts at BEA and JCT think their method will miss some foreign-to-foreign profit shifting. See Section II of my note for details. Within, Tables 1 and 2 provide evidence of important empirical puzzles from this method.
(5/6) In Jan. 2020, I will post a revision of my earlier 2019 paper on profit shifting. Within, I correct an error in my use of the BEA direct investment income data. This lowers my prior estimates, but it still leaves large magnitudes of profit shifting, similar to those here.
(6/6) I will also report results from several different data sources to suggest upper and lower bounds of the profit shifting problem. All preliminary numbers show a very large problem. And, data from 2018 and 2019 indicate the problem is so far undiminished in the wake of TCJA.
