The Missing Profits of Nations

56 Pages Posted: 13 Jun 2018 Last revised: 30 Jun 2021

See all articles by Thomas Tørsløv

Thomas Tørsløv

University of Copenhagen

Ludvig Wier

University of Copenhagen

Gabriel Zucman

University of California, Berkeley - Department of Economics

Date Written: June 2018

Abstract

By exploiting new macroeconomic data known as foreign affiliates statistics, we show that affiliates of foreign multinational firms are an order of magnitude more profitable than local firms in low-tax countries. By contrast, affiliates of foreign multinationals are less profitable than local firms in high-tax countries. Leveraging this differential profitability, we estimate that close to 40% of multinational profits are shifted to tax havens globally. We analyze how the location of corporate profits would change if all countries adopted the same effective corporate tax rate, keeping global profits and investment constant. Profits would increase by about 15% in high-tax European Union countries, 10% in the United States, while they would fall by 60% in today's tax havens. We provide a new international database of GDP, trade balances, and factor shares corrected for profit shifting, showing that the rise of the corporate capital share is significantly under-estimated in high-tax countries.

Suggested Citation

Tørsløv, Thomas and Wier, Ludvig and Zucman, Gabriel, The Missing Profits of Nations (June 2018). NBER Working Paper No. w24701, Available at SSRN: https://ssrn.com/abstract=3194743

Thomas Tørsløv (Contact Author)

University of Copenhagen ( email )

Nørregade 10
Copenhagen, DK-1165
Denmark

Ludvig Wier

University of Copenhagen ( email )

Nørregade 10
Copenhagen, DK-1165
Denmark

Gabriel Zucman

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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