Research
Working Papers
Pennies from Haven: Wages and Profit Shifting (with Annette Alstadsæter, Julie Brun Bjørkheim and Ronald B. Davies)
Cesifo Working Paper No. 9590 (current version: February 2022)
EU Tax Observatory Working Paper No.2 (current version: April 2022)
Oxford University Centre for Business Taxation Working Paper No.4 (current version: February 2022)
Abstract: 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.
Work in Progress
Transfer Pricing Strictness and the Demand for Tax Advisors (with Julie Brun Bjørkheim) Draft available upon request!
Abstract: Drawing on administrative tax return and trade data linked with employment records for the universe of internationally active Norwegian corporations, this paper studies behavioral responses to increases in transfer pricing (TP) strictness. In particular, we are the first to shed light on the magnitude of multinational enterprises (MNE) tax compliance costs following a TP reform in Norway by exploiting information on monetary expenses for both external consultancy services and in-house lawyers and accountants. Our results confirm tax-induced distortions of trade prices that appear to be heterogeneous across sectors and trade flows. Difference-in-differences event study designs reveal that the Norwegian legislation had significant and persistent positive effects on tax payments, reported profits, and spending on tax advisors. We estimate that expenses for advisory services increased on average by NOK 4.64 million per MNE in the year following the reform, which consists of an increase of 12.5% on external consultants and 150% on in-house advisors. Moreover, we find evidence that stricter TP regulations in countries with Norwegian affiliates manifest in positive cross-border effects on the demand for tax advisors.
Tax Haven Usage and Employment Reallocations: Evidence from Norway
Fine By Me: Tax Dodging and Behavioral Responses to Penalties