The DI builds community and expertise around the digital transformation of the economy at HBS and beyond through curated content, facilitated exchange, and thought leadership.
America's infrastructure woes and how to fix them were front and center at the recent summit, America on the Move: Transportation and Infrastructure for the 21st Century, led by Rosabeth Moss Kanter.
Do tax havens reduce domestic economic activity? This paper explores the effects of unilateral efforts to combat profit shifting on domestic investment and employment. We develop a model of multinational investment that shows profit shifting generates tax complementarities between tax havens and high tax countries. We then analyze the effects of the repeal of Section 936 of the Internal Revenue Code as a natural experiment that limited profit shifting activities for US multinationals with operations in Puerto Rico. We show that firms exposed to §936 responded to the reform by decreasing employment and investment in the US, and by shifting investment to foreign affiliates. These firm-level responses had large effects on local labor markets. We create a measure of exposure to §936 for each local labor market that exploits the establishment networks of US multinationals. We find that labor markets with a greater exposure experienced a decline in employment and income growth that persisted even after the phase-out of §936. These results show that unilateral efforts to combat profit shifting may have large unintended consequences on domestic economic growth.
May
16, 2018
|
1:30pm -
3:00pm
| Baker Library | Bloomberg Center 101
| Faculty and doctoral students only
