Pennies from Haven: Wages and Profit Shifting
Speaker(s)Ronald Davies (University College Dublin, Ireland)
LocationErasmus University Rotterdam, Campus Woudestein, room M3-03
Date and time
May 01, 2023
11:30 - 12:30
The ability of some multinationals to reduce their tax burdens by shifting profits to tax havens has drawn increasing criticism both because of the lost revenues to high-tax countries and the perceived inequality this creates in the tax burden across firms. We demonstrate that such concerns are not the only impacts of profit shifting by using rich matched employer-employee data to show that profit-shifting firms pay higher wages. This is particularly apparent among service firms where the wage premium is approximately 2%. Further, there is substantial within-firm heterogeneity with high-skill occupations earning higher profit-shifting wage premiums. CEOs gain the most, with their wages rising nearly 10%. These estimates suggest that wage inequality growth would have been approximately 8% lower in the absence of profit shifting. Finally, our back-of-the envelope calculations indicate that higher wages lead to higher income tax revenues that offset around 12% of the fall in Norway’s corporate tax revenues due to profit shifting. Thus, profit shifting not only impacts government revenues, but contributes meaningfully to aggregate wage inequality. Joint paper with Annette Alstadsæter, Julie Brun Bjørkheim, and Johannes Scheuerer.
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