Is it Just Luring Reported Profit? The Case of European Patent Boxes,
(with F. Liberini and M. Koethenbuerger), [CESifo Working Paper 7061], R&R, Journal of Public Economics.
Abstract: The preferential taxation of income from intellectual property has become an increasingly popular policy instrument in the European Union and the US to attract mobile tax bases of multinational enterprises (MNEs) and to foster productivity. This paper estimates the size of the (un)intended effects of this new tax regime. We show that MNE affiliates that can benefit from the preferential regime report 8.5 percent higher profits. The profit change splits up into a profit shifting and a productivity effect in proportions two third and one third. Surprisingly, the profit shifting response includes an unintended, reversed profit shifting out of the affiliate. Contrary to widely held beliefs, the overall behavioral adjustment might lower tax revenues collected from MNEs.
Income Taxes and the Residential Mobility of Top Income Earners: Evidence from US and UK Households in Switzerland,
(with M. Koethenbuerger, C. Naguib, and C. Stettler), [CESifo Working Paper 10367], The Economic Journal, conditionally accepted.
Abstract: We provide quasi-experimental evidence on the income tax-induced residential mobility of foreign high-income households living in Switzerland by exploiting the differential tax treatment of UK and US households. While the two groups are similar in terms of non-tax sorting preferences, US households are effectively insulated from Swiss income taxation due to the US world-wide income tax system. Thus, they provide the control group for the UK households, our treatment group. Comparing the residential choices of the two groups within a 45-minutes commuting zone of Zurich, we robustly find a residential location elasticity with respect to the net-of-tax rate of around eight.
This estimate captures the 'pure' income tax effect on residential choice, not being downward biased by non-tax location incentives (that positively correlate with income taxes) and by coordination costs between job and residential choices, for instance.
Optimal Dual-Regime Business Tax Systems,
(with R. Sharma, J. Slemrod , J. Wilson, and P. Choi), [CESifo Working Paper 11962].
Abstract: Dual-regime business tax systems typically subject smaller firms to an output (turnover) tax and larger firms to a profit (corporate) tax. Despite their prevalence, there is little formal analysis of their optimal design. This paper addresses this gap by developing a theoretical framework to analyze the optimal tax parameters and the relative performance of two types of dual-regime systems: threshold and minimum tax systems. We show that either type of dual regime system can yield lower social costs than a single regime system. Using parameter values from recent empirical studies, we also show that a generalized minimum tax system we propose would outperform other dual regime systems under most parameter values. These findings carry important policy implications, particularly as many countries currently employ either threshold or minimum tax systems, but none have yet implemented a generalized minimum tax.
Tax Instruments for Fostering Firms’ R&D and Innovation Activity: A Study of the UK’s Innovation Policy Portfolio, (with M. Devereux, I. Guceri and F. Liberini), mimeo.
Abstract: The UK government has undertaken several tax measures designed to induce greater innovation and research and development. These measures include super deduction of Research and Development (R&D) expenses, the R&D Expenditure Credit (RDEC) scheme, cash credits for companies without tax liability, and accelerated depreciation for investment. In this project, we evaluate the impact of the introduction of the UK Patent Box on the retention of patents in the UK, as well as on real economic outcomes such as R&D expenditures, firm productivity, investment and employment of those firms that are eligible for the preferential tax treatment of the UK Patent Box. In addition, we identify and quantify the effects of the UK Patent Box on firms’ profit shifting behavior. Having identified the economic effects of the UK Patent Box, we assess the effectiveness of this particular tax measure by comparing the costs and benefits of the UK Patent Box regime with other existing UK tax incentives, such as the RDEC and the enhanced R&D deductions for SMEs.
The Role of Toeholds and Capital Gain Taxes for Corporate Acquisition Strategies,
(with F. Liberini and A. Russo), [CESifo Working Paper 6151].
Abstract: Ownership takeovers often follow complex strategies where the control of the target firm is acquired through a sequence of independent contracts. Based on this observation, we develop a novel theoretical model wherein the acquiring firm decides on the number of steps towards the full ownership of the target (the acquisition structure) and on the combination of cash and stock used to finance the takeover (the method of payment). Within this framework, we analyze the effect of the capital gains tax on these two decision margins and test our theoretical prediction using a bivariate probit model on a sample of acquisition contracts between 2002 and 2014, collected from Bureau van Dijk’s Zephyr database. Our estimates confirm the lock-in-effect and indicate a larger discouraging effect of rising capital gains taxes (+10%-points increase) on one-shot full acquisition (-6.0%-points) versus on sequential acquisitions (-5.2%-points). Further, we provide evidence that an increase in the capital gains tax (+10%-points) raises the probability of choosing one-shot full acquisition (+5.5%-points) instead of sequential acquisitions.
Tax-induced Transfer Pricing and Corporate Agency Costs,
(with T. Gresik and M. Koethenbuerger), mimeo.
Process Risk, Product Risk and Corporate Taxation,
(with M. Mardan and G. Schjelderup), mimeo.
The Effects of (In-) Direct Taxation on Growth and Competitiveness, mimeo.