Working Paper & Work in Progress

In recent years, a growing number of countries have enacted tax rules that require multinational enterprises (MNEs) to document their intra-firm trade prices and show that they are set as in third-party trade. The objective of these rules is to limit opportunities for strategic trade mis-pricing and profit shifting to lower-tax affiliates. In this paper, we study the regulations’ fiscal and real effects. Testing ground is the introduction of transfer price (TP) documentation rules in France in 2010. Drawing on rich firm-level data, we show that affected MNEs reduced their outward profit shifting from France, while simultaneously lowering real investments in the country. Outside of France, treated MNEs decreased their investments at low-tax (but not at high-tax) group locations. We show that the observed investment response in France and abroad is driven by reform-induced increases in firms’ effective tax costs; there is no indication that MNEs responded to compliance burdens associated with the new TP documentation rules.

Airbnb and other home sharing platforms experienced a meteoric rise over the past decade. In recent years, they ran into headwinds though: More and more cities enacted home sharing ordinances (HSOs) that regulate the short-term rental market. Most of the regulations aim to ban commercial short-term renting – that is, hosts who divert residential property to pure short-term rental use. We study the effect of HSOs in leading German cities on the size and the structure of the local short-term rental market. Our estimates suggest that HSOs decrease commercial short-term rental activity – but fail to abolish it: Listing days related to commercial Airbnb properties, on average, drop by 20-32%. We provide evidence that many commercial hosts remain in the market even if this violates current regulations. Moreover, HSOs (unintentionally) decrease the short-term rental activity of hosts who only occasionally rent out their residence on a short-term basis. Additional analyses show that HSOs have minor effects on long-term residential housing markets. Only relatively few properties are redirected from short-term rental use to the long-term residential market and we find no indication for a drop in long-term rental prices. 

This paper quantifies the local economic impact of Special Economic Zones (SEZs) that were established in India between 2005-2013. Based on a novel data set that combines census data on the universe of Indian firms with georeferenced data on SEZs, we find that SEZs increased manufacturing and service employment with positive spillover effects up to 10km. This employment gain was paralleled by a decline in local agricultural employment, in particular of women, suggesting that the policy contributed to structural change. We find no evidence for heterogeneous effects between privately and publicly run SEZs or zones with different industry denominations. 

Taxpayer audits are key instruments to combat tax evasion. Whether they deter tax non-compliance beyond audited taxpayers is largely unclear, however. Drawing on rich tax administrative data for South Africa, we show that business tax audits enhance the tax reporting compliance of unaudited firms in the same local network as the targeted business. On average, firms’ reported tax liability increases by around 1.5% when a business in close proximity (located within a 100m radius) undergoes an audit. This estimate translates into sizable aggregate revenue gains, as audited firms are linked to numerous neighbors. Additional analyses show that audit spillovers emerge across a larger spatial scale within industry and tax preparer networks. Our findings carry important implications for the design of tax enforcement policies.

A significant share of firms in developing countries is not registered for income taxation. Expanding the tax net is a priority for many governments, but most formalization policies proved relatively ineffective in bringing firms into the tax net. Drawing on rich tax administrative data, we document that snapshot-synchronizations of the business tax and the commercial registry in South Africa led to a large-scale expansion of the South African business taxpayer net. While the targeted firms are a valuable segment within the non-formal sector, we show that their post-registration tax compliance is weak and few of them pay taxes. Owing to the large scope of the tax net expansion, the aggregate revenue gains are, nevertheless, non-negligible and the interventions are fiscally cost-effective. In additional analyses, we provide evidence for enforcement spillovers: In areas, where many firms were drawn into the tax net, tax registration

compliance significantly improved after the snapshot synchronizations, while registration numbers at the commercial registry moderately declined.