PROFIT SHIFTING AND CORRUPTION

Katarzyna Habu () and André Seidel
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Katarzyna Habu: NBER and Oxford University Centre for Business Taxation, Saïd Business School and and Department of Economics, Oxford University
Authors registered in the RePEc Author Service: Katarzyna Anna Bilicka

No 5/18, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: This paper introduces heterogeneous profit shifting costs induced by corrupt tax officials to the analysis of profit shifting of multinationals. Using a theoretically derived corruption weighted tax differential, we show that corruption increases profit shifting of European firms. We use our estimates to calculate the implied tax revenue elasticities for European countries and find that countries with otherwise similar tax rates face lower tax revenue elasticities when they are more corrupt. This means that corruption negatively affects the revenue gains that countries could have from increasing their tax rates.

Keywords: corruption; profit shifting; tax revenue elasticities (search for similar items in EconPapers)
JEL-codes: D73 H25 H26 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2016-08-19, Revised 2018-05-23
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Related works:
Journal Article: Profit shifting and corruption (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:bergec:2018_005

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