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Unintended Consequences of Eliminating Tax Havens

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  • Juan Carlos Suárez Serrato

Abstract

Eliminating firms' access to tax havens can have unintended consequences for their domestic economic activity. We study a policy that limited profit shifting by US multinationals and show it raised the tax cost of domestic investment. Firms affected by the policy responded by reducing investment and domestic employment. Firm-level responses were amplified to local labor markets through the establishment networks of profit-shifting firms. More exposed local labor markets experienced declines in employment, income, and home values and saw increases in government transfers. Policy proposals that limit profit shifting should therefore consider effects on economic activity in addition to tax revenue.

Suggested Citation

  • Juan Carlos Suárez Serrato, 2018. "Unintended Consequences of Eliminating Tax Havens," NBER Working Papers 24850, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24850
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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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