RESEARCH
Job Market Paper
Abstract: Anti-tax avoidance policies aim to curb profit shifting by MNEs, yet their effects on capital costs and economic growth remain a critical question. This study examines the causal impacts of Earnings Stripping Rules (ESR)---an anti-avoidance measure adopted by over 45 jurisdictions between 2015 and 2023---that limit profit shifting through debt channels but increase the cost of debt-financed capital. Using a large panel dataset on global MNE operations and a staggered difference-in-difference design, I compare the real activities of MNEs affected by ESR with those of unaffected groups. I find that ESR effectively reduce profit shifting and tax avoidance but lower investments in affected subsidiaries. However, MNEs reallocate these investments to other subsidiaries, maintaining overall group-level investments. This reallocation, primarily within local subsidiaries, corrects prior capital misallocation and raises group-level tax revenue. These findings suggest that coordinated and well-targeted anti-tax avoidance rules can reduce tax avoidance without stifling overall investment.
Other Working Papers
Abstract: Aggressive profit shifting by MNEs is a growing concern for domestic resource mobilization in developing economies. This paper evaluates the revenue and welfare consequences of a flagship anti-avoidance rule that has been implemented in more than 45 countries to prevent profit shifting by MNEs through the debt channel. Our focus is Uganda, a representative developing country which implemented the rule in 2018. Exploiting admin data comprising the universe of corporate tax returns, we find that the rule does not significantly increase profits reported by MNEs in Uganda or tax remitted by them in Uganda. As an unintended consequence, however, the implementation of the rule leads to a contraction in real economic activity, reducing the turnover, employment, and trade of treated MNEs. We highlight the limited targeting efficiency of the rule, questioning its overall effects on welfare.
Abstract: Size-based regulations and taxation are ubiquitous. In this paper, we examine the impact of size-based taxation on firm growth by exploiting a large and permanent tax reform from Pakistan, where the VAT threshold was raised from PKR 5 million to PKR 10 million. Using a difference-in-differences framework and rich administrative data, we estimate the causal effects of this reform on firms whose growth was previously constrained by the size threshold. Our findings reveal substantial growth effects: treated firms saw their revenue increase by 32 log-points, costs by 19 log-points, and gross profits by 13 log-points. These effects are driven by real economic activity, as third-party reported outcomes, such as wages and imported inputs, also grew by similar margins. Treated firms paid higher taxes across various measures, highlighting their strong willingness to pay to get rid of the size-based policy. The results emphasize the importance of carefully designing size-based policies, as they can lock firms into significantly slower growth trajectories.
Abstract: This paper investigates the role of Gulf Cooperation Council (GCC) cross-border investments, including by Sovereign Wealth Funds (SWFs), in driving economic growth and diversification of GCC countries. Following the pandemic, GCC countries have accelerated reforms to attract foreign investment and talent. These efforts align with their broader growth strategies, aiming to enhance productivity, diversify their economies, and support sustainable growth alongside the energy transition. Utilizing a novel deal-level dataset, we analyze GCC cross-border investment portfolios across various dimensions such as time, geography, sector, and industry. We show that recent years have witnessed an increase in GCC cross-border investments. While the geographic distribution of these investments remains diverse and balanced across different regions, both inward and outward investments are increasingly directed towards the services sector. The empirical results demonstrate a positive impact of both inward cross-border investments and domestic investments on GCC real non-hydrocarbon GDP growth. Notably, the impact of inward investments is almost three times larger in the medium term. This amplification could be explained by increased investments in high-growth, higher-value added sectors, knowledge-intensive sectors, and more recently, renewable energy. This paper highlights the ongoing economic transformation in GCC countries, driven by strategic investments. SWFs are emerging as key contributors to this transformation.
Works in Progress
Disparities in Air Pollution Exposure in India: Any Policy to Blame?
joint with Ujjayant Chakravorty (Tufts), Ron Chan (Manchester), & Martino Pelli (ADB)
Abstract: Environmental policies often focus on reducing emissions at the national level but overlook local impacts, raising questions about whether they promote fairness or exacerbate inequalities. This project investigates the local effects of these policies in India, using satellite data on particulate matter pollution and neighborhood characteristics. We track the spatial distribution of pollution from 1998 to 2020, finding that while national policies may not reduce overall emissions, they tend to worsen local environmental inequalities, especially in rural areas. By analyzing panel data from 2014 to 2020, we find that lower castes and religious minorities experience fewer improvements in air quality, highlighting how policies can deepen inequalities depending on their scope and the demographics of affected populations.