Research

PUBLICATIONS


[WP version ] [ Published version]  [slides, GFP OECD Webinar  ] [VoxEU story] [ Blog OFCE (French) ]

Based on French firm-level data over 15 years we evaluate the contribution of the microlevel profit-shifting –through tax haven foreign direct investments– to the aggregate productivity slowdown measured in France. We show that firm measured productivity in France declines over the immediate years following the establishment in a tax haven, with an average estimated drop by 3.5% in labor apparent productivity. To isolate the contribution of multinationals enterprises' (MNEs) tax optimization to this decline of apparent productivity, we then exploit the 2006 Cadbury-Schweppes decision of the European Court of Justice limiting the extent to which member States can counter European MNEs' tax planning strategies. We find that multinational groups benefiting from that loosening of the legal constraints do exhibit lower apparent productivity in France following that ruling. Our results moreover suggest that this bias is bigger when firms rely more intensively on intangible capital. Finally, given these firms’ weight in the economy, our results imply an annual loss of 9.7% in terms of the aggregate annual labor productivity growth.


[ WP version] [ Published version]  [Online appendix] [slides]

Standard horizontal FDI models predict substitutability between FDI and exports in light of the proximity-concentration trade-off, nonetheless, empirical literature finds, almost invariably, a complementarity effect. We argue that given the multi-product nature of the vast majority of firms, FDI and exports can coexist even at the level of the firm. We use detailed French firm-level data over 2002 and 2009 to show that the question of whether FDI and exports are complements or substitutes depends on whether the product belongs to the core competency of the firm and the demand in the destination market. We provide new evidence on the substitutability relation between FDI and exports, which takes place in the best performing products of the firm and in high demand markets when the size of the investment is sufficiently high. In turn, foreign presence generates "proximity advantages" which generates exports of products further away of the firms' core competency.



WORKING PAPERS


[ This version: February 2024 ] [slides]

This paper provides causal evidence on how multinational enterprises' (MNEs) presence in tax havens translates into job cuts in France following the 2006 European Court of Justice (ECJ) judgement on the Cadbury-Schweppes case, which weakened member States' controlled foreign company rules (CFC). Using French firm-level data over 2001 and 2014 we show that this weakening in European Anti-tax avoidance rules generates a sharp decline in employment in France in European MNEs having a pre-judgement presence in a European tax haven. We show that treated MNEs lose about 6% of their local employment after the ECJ decision. The effects are mainly concentrated in highly qualified workers and white collars (5% decline for each category). An event-study design shows that no effects are found for MNEs without a pre-judgement presence in a European tax haven, suggesting that it is the weakening in the CFC rules that fosters job cuts at home. Two plausible explanations for these findings are linked to: i) a decline in the cost of opacity allowing firms to restructure and carry out otherwise expensive mass layoffs in France and ii) more stringent rules specifically affecting "wholly artificial arrangements" (i.e. pure letter boxes), which increase the need to comply with substance rules and justify a presence in a European tax haven. 


[This version: August 2023 ] [VoxEU story] 

The rise of economic inequalities in advanced economies has been often linked with the growth of spatial inequalities within countries, yet there is limited comparative research that studies the relationship between national and subnational economic inequality. This paper presents the first systematic attempt to create internationally comparable evidence showing how different countries perform in terms of geographic wage inequalities. We create cross-country comparable measures of spatial wage disparities between and within similarly-defined local labour market areas (LLMAs) for Canada, France, (West) Germany, the UK and the US since the 1970s, and assess their contribution to national inequality. By the end of the 2010s, spatial inequalities in LLMA mean wages are similar in Canada, France, Germany and the UK; the US exhibits the highest degree of spatial inequality. Over the study period, spatial inequalities have nearly doubled in all countries, except for France where spatial inequalities have fallen back to 1970s levels. Due to a concomitant increase in within-place inequality, the contribution of places in explaining national wage inequality has remained fairly constant over the 40-year study period, except in the UK where we document a significant increase. Whilst common global social, economic and technological shocks are important drivers of spatial inequality, this variation in levels and trends of spatial inequality opens the way to comparative research exploring the role of national institutions in mediating how global shocks translate into economic disparities between places.


[ This version: April 2023 ] [slides]

Using French firm-level data we study the role of multinational enterprises' (MNEs) presence in tax havens in determining income inequalities between labor and capital by inspecting the dynamics of the aggregate labor share. Given these firms’ weight in the economy, we find that tax haven presence of MNEs accounts for a 7.3% of the observed increase in the aggregate share of labor in France between 1997-2014 and argue that this is due to a mismeasurement. We implement a difference-in-differences to analyze the effect of firm entry in tax havens on firms' labor share and on each of its components. We find that the average firm labor share experiences an increase by 2.3% over the immediate years following the establishment in a tax haven. The labor share of MNEs with presence in tax havens is overestimated, as tax optimization consists in shifting profits to low tax jurisdictions. Thus underestimating domestic value added, which experiences an average drop by 10.2%. Indeed, the labor share increases even if its numerator, total wage bill, decreases on average by 8.2% when MNEs enter a tax haven. Additionally, the total wage bill drop is explained by a strong decline in employment (-7.7%) rather than a decline in average firm wages, on which there is no statistically significant effect. We argue that the mechanism at play is the "opacity effect" instead of the "tax effect" by showing that the job cuts and tax haven entry nexus is not explained by an increase in capital intensity but rather by a restructuring decision triggering mass layoffs procedures, which French labor law only allows in case of "real and serious economic difficulties". A panel event-study design shows that our estimates capture the tax haven entry effect and not differential trends between treated and control units. Finally, we show that these developments are exclusively related to tax haven foreign investment and not to other foreign investments. 


[ This version: June 2022 ] [slides]

The global financial crisis has brought to center stage the international transmission of financial shocks. Similarly, recent global shocks, such as Covid-19 and the war in Ukraine, have shown the vulnerability of production chains relying on foreign suppliers. There has even been suggestions to cut cross border integration of production chains. The cross border transmission of shocks has generally been studied looking separately at trade linkages and financial linkages. The novelty of this paper is that, focusing on the transmission of global shocks during the Great Recession, it jointly analyzes trade and financial linkages in order to assess their effects on the real economy. Exploiting firm-level data on French firms, it uses pre-determined international sourcing and trade credit relations to identify the heterogeneous effects across firms of the global financial crisis on French employment. Our findings imply that strong pre-crisis sourcing ties with countries that were more resilient to the global crisis, translated into better performance in terms of employment growth over 2008-2009. This effect dramatically varies with trade credit intensity. Strongly relying on trade credit made firms more vulnerable to unanticipated shocks, for whom the adverse impact of the crisis was exacerbated. This effect intensified among firms with important sourcing ties with severely shocked countries. By contrast, the negative effect of the crisis was mitigated for trade credit intensive firms when they had stronger sourcing relations with countries subject to milder shocks.


[ This version: August 2021 ] [slides][data]

We link the Lucas’ Paradox to the interaction between sector and country-level financial frictions. First, we compute proper measures of the aggregate marginal product of capital (MPK), accounting for natural capital and relative capital prices, for a panel of 50 developed and developing countries over 1995-2008. Our aggregate MPK measures imply there are little incentives for capital to flow to capital-poor economies  over the sample period. Next, we examine how sector and country-level financial frictions interact to shape the aggregate MPK of a country. To do so, we use industry-level data to construct an annual country-level measure of external financial dependence and assess its effects on aggregate MPK conditional on the level of financial development and alternatively, on legal origins, our instrumental variable. We find that external financial dependence positively relates to MPK in developed countries, regardless of their level of financial development while it negatively relates to MPK in developing economies. Financial development appears to be a necessary condition in order for production in financially dependent sectors to positively affect aggregate MPK in developing countries. Our results taken altogether suggest that sector and country level financial frictions act as inefficiencies precluding improvements of MPK in developing economies despite large differences in capital-to-labor rations with respect to developed countries.


WORK IN PROGRESS



 Information about the project can be found here. 



This paper investigates the way in which foreign competition affects firm survival and survival modes in terms of employment size and how this relation varies with firms’ share of skilled labor. Using French firm level data in the manufacturing sector we show that skilled labor is positively related to firm survival and firm growth and that there seems to exist an optimal level of skilled labor share, beyond which additional increases in the share are related to higher probabilities of exiting and of firm contraction. Our findings show competing effects on firm exit and survival likelihoods for import penetration. On the one hand, a stronger competition pressure pushes firms out of the market, to downsize employment and prevents them to expand. On the other hand, the “supply channel” decreases exiting and contraction probabilities and increases expansion probabilities. Our results show a clear pattern between the conditional effect of import penetration and shares of skilled labor, where human capital rises the firm’s ability to face foreign competition by decreasing probabilities of firm exit and contraction and increasing that of expansion. 


OLDIES

[ This version: June 2018 ] 

The aim of this study is to bring micro-founded comparisons of sector levels of productivity between France and Germany within the manufacturing sector and analyzing the asymmetric effect that the 2008 crisis had in both countries. Our results reveal an overall advantage of Germany over France in the manufacturing industry over the period 2003-2013. Additionally, this is explained by a lead of Germany over France in almost every sector considered. Nonetheless, breaking down our sample into two periods, uncovers a very interesting trend, the international productivity gaps narrow systematically after the Great Recession. This result is explained both by a better performance of French firms in every sector and a deterioration of German firms in some sectors.