## wpiea2019287-print-pdf

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### I. Introduction — key findings and context
- Multinational corporations (MNCs) can reduce global tax liabilities through profit shifting (transfer price manipulation, intra-company debt, strategic location of intangible assets such as intellectual property (IP)).
- Consensus semi-elasticity of reported profits with respect to international tax differential: 1.5. That is, a 1 percentage-point reduction in the statutory CIT tax rate in a certain location is expected to raise reported profits by multinationals in that location by 1.5 percent, ceteris paribus.
- Size of revenue at stake:
  - United States: tax avoidance costs about between one quarter and one third of total corporate tax revenue in 2012 (Clausing, 2016).
  - Losses elsewhere could be much larger and possibly amount to several points of GDP, especially in lower income countries with weak enforcement capacity.
- Policy response to profit shifting includes transfer pricing regulations, thin capitalization rules, controlled foreign corporations (CFC) rules, and general anti-avoidance rules (GAAR).
- G20-OECD BEPS initiative aims to address major tax avoidance opportunities; participating countries commit to four minimum standards and common approaches to anti-avoidance legislation (OECD, 2015).
- Paper focus: impact of profit shifting and countermeasures on real investment and tax competition.
- Main conclusions (as stated):
  - Real investment can be affected by profit shifting in various ways:
    - Investment in high-tax countries may be higher if investors can avoid some tax through profit shifting.
    - Investors may also invest more in low-tax jurisdictions because capital there facilitates shifting profits into those jurisdictions.
  - Tax competition may include permissive attitudes toward profit shifting as a component; limiting profit shifting via international coordination may intensify pressure to reduce statutory tax rates.

### II. Effects of profit shifting when capital is mobile — conceptual framework and model setup
- Framework basis: Hines and Rice (1994); Grubert and Slemrod (1998); related approaches in Suárez Serrato (2018), Desai, Foley, and Hines (2006); Peralta, Wauthy, and van Ypersele (2006); Harper and Liu (2019); Johannesen (2012).
- Representative firm setup and objective:
  - After-tax profits: ∑(1−t_j) f_j(K_j) − r ∑K_j.  (Equation (1) context)
  - f_i(·) is production function in country i: f_i′(K_i) > 0 and f_i′′(K_i) < 0.
  - r is required rate of return.
- Two-stage firm decision:
  1. Decide capital allocation K_j across countries.
  2. Choose profit-shifting strategy by reporting profitability π_i instead of true profitability (f_i(K_i)/K_i).
- Profit-shifting cost specification:
  - c(π_i, K_i) = K_i^2 2a (π_i − f_i(K_i)/K_i)^2.  (Equation (2) as presented)
  - Parameter a measures extent of costs from reporting local profits different from true profits; high values of a imply lower profit shifting costs. Stricter anti-avoidance regulations (or stronger administrative capacity) increase cost of profit shifting or lower the value of a.
  - Linking profit-shifting costs to capital stock ties profit shifting to real investment decisions.
- Tax-planning optimization (given capital allocation {K_j}):
  - max_{π_j} ∑_{j} K_j [ (1−t_j) π_j − r − (π_j − f_j(K_j)/K_j)^2 / (2a) ], subject to ∑_j f_j(K_j) = ∑_j π_j.  (Equation (3) as presented)
  - Constraint: firm must report total profits truthfully but can shift location of profits to minimize taxes.
- Model implications highlighted:
  - In extreme costless profit shifting, effective CIT rate for investment can become zero, reducing income-shifting adjusted cost of capital to normal rate of return and boosting investment relative to case of no profit shifting.
  - Real investment responds to the extent and cost of profit shifting; when profit shifting costs rise with capital, investment and profit shifting decisions are interlinked.
  - Alternative modeling choices (e.g., profit shifting independent of capital stocks or cost function increasing in proportion of profit shifted) yield different implications for links between profit shifting and real investment.

### III. Model and key mechanisms
- Profit shifting modeled via reported profitability:
  - πi = fi(Ki) Ki + a(t̃ − ti)  (Equation (4)); t̃ is the capital-weighted-average tax rate (∑tjKj / ∑Kj).
- Three direct implications from Equation (4):
  - Direction of profit shifting depends on relative statutory tax rates: firms under-report profits where the corporate tax rate is above the capital-weighted average and over-report where it is below (reproduces Hines and Rice (1994) prediction).
  - Reported profitability magnitude is positively correlated with economic profitability.
  - Optimal reported profitability is inversely related to profit-shifting costs; higher concealment costs dampen profit reallocation.
- Firm investment choice anticipates profit-shifting decisions; substitution of optimal reported profitability yields an investment objective and a user cost condition:
  - fi′(Ki) = 1/(1−ti)[ r − a/2 (t̃ − ti)^2 ]  (Equation (6)).
  - Interpretation: the income-shifting–adjusted user cost of capital is reduced by the net marginal benefit from profit shifting.

### IV. Impact on real investment
- Profit-shifting opportunities reduce the cost of capital in all countries except those with tax rate exactly equal to the global average; hence profit shifting raises global capital stocks.
- Reduction in user cost of capital is largest where:
  - tax rates are most different from the average,
  - countries have higher tax rates,
  - anti-avoidance rules are less stringent (reflected in higher a).
- Consequence: increased real investment in both low-tax and high-tax countries (though revenue effects differ).

### V. Impact on government behavior and instruments
- Governments can respond by:
  - reducing statutory corporate tax rate (lower ti),
  - introducing preferential tax regimes (lower effective ti for some activities),
  - loosening anti-avoidance regulations (higher a),
  - signaling lax enforcement (higher a).
- In the model, lower ti and higher a are substitutes in reducing the profit-shifting–adjusted user cost of capital.
- Revenue expression assuming firms choose K* from (6):
  - Ri = ti f(Ki*) + a ti (t̃* − ti) Ki*  (Equation (7)).
- Two-country illustrative case with f(K)=K^α gives implicit expressions for Ki (Equation (8)); numerical exploration required to solve iteratively.

### VI. Costs of profit shifting and two-country numerical illustration
- Numerical assumptions for illustration:
  - Country 1 tax = 30 percent; Country 2 tax = 20 percent; world required rate of return r = 10 percent; α = 1/3.
- Simulation insights:
  - Low-tax country has higher capital stock; both countries’ capital stocks rise as profit shifting becomes less costly (a increases).
  - Revenues rise in the low-tax country and fall in the high-tax country as profit shifting becomes easier.
  - For high-tax countries: protecting tax bases (tightening rules) reduces capital stock but raises revenue.
  - For low-tax countries: relaxing profit-shifting rules boosts both capital stocks and revenues.
- Tax-rate variation (with a = 0.2, r = 10%, α = 1/3):
  - Presence of profit shifting makes raising the tax rate much less effective at increasing revenues than in a no-profit-shifting scenario.
  - Spillovers: raising Country 1’s tax rate yields positive spillovers on Country 2 when Country 1’s rate is above 20 percent, negative otherwise.
  - Ambiguous net effect on tax competition: profit shifting reduces revenue benefits from raising rates but reduces costs in terms of lost investment; if revenue is prioritized, downward pressure on tax rates can result.

### VII. Heterogeneous capital and policy duality
- Not all capital is equally mobile; mobile capital (KM) may have access to profit shifting while immobile capital (KI) may not.
- Literature findings:
  - Profit shifting within limits can benefit even countries that lose tax base due to increased investment and ability to raise statutory rates (Hong and Smart (2010)).
  - Uncoordinated equilibria can produce inefficiently low tax rates and lenient anti-avoidance rules (Haufler and Runkel (2012)); coordination on tightening can benefit both countries in some models.
  - Preferential tax regimes targeting mobile capital can be welfare enhancing by restricting competition to mobile base without sacrificing immobile base revenue (Keen (2001); Janeba and Smart (2003)).
- Duality between preferential regimes and profit shifting:
  - Both differentiate effective taxation of mobile vs immobile capital.
  - Key policy implication: international agreements to curb profit shifting (e.g., BEPS) may or may not increase revenues, depending on mobility and elasticities of bases.
- Advantages and disadvantages:
  - Profit shifting allows firm self-selection, potentially reducing administrative/compliance costs of special regimes.
  - Profit shifting imposes deadweight costs (non-productive structures, subsidiaries with no actual activity).

### VIII. Empirical evidence (selected findings)
- Investment response to tax differences:
  - Overesch (2009): real investment in Germany increases by 0.971 percent with each percentage point increase in the tax rate difference between Germany and the investor’s country.
  - Desai, Foley and Hines (2006): if likelihood of establishing a low-tax affiliate rises by 1 percent, sales and investment in the region (outside the low-tax affiliate) grow by 0.5-0.7 percent.
  - Goldbach and others (2019): multinationals increase investment in Germany following investment abroad; effect stronger with greater tax differential.
  - Becker and Riedel (2012): semi-elasticity of host-country investment wrt home-country tax rate of -0.56.
- Evidence on profit-shifting costs and anti-avoidance rules:
  - Grubert and Slemrod (1998): investment by Puerto Rican affiliates of U.S. MNCs responds significantly to firm-level proxies for cost of shifting; simulations suggest nearly half of U.S. firms in PR are there solely for profit-shifting benefits.
  - Suárez Serrato (2018): removing tax advantage of shifting profits to Puerto Rico reduced domestic investment of US multinationals by 38 percent, and domestic employment by 1.0 million jobs.
  - Transfer pricing regulation:
    - De Mooij and Liu (2018a): introducing/tightening transfer pricing regulations reduces MNC fixed investment by 15 percent relative to domestic companies.
    - Buettner and others (2018): find no significant impact of transfer pricing regulations in German affiliate data.
  - Thin-capitalization rules:
    - Buettner and others (2018) and De Mooij and Liu (2018b): negative effect on investment and employment; De Mooij and Liu find stronger negative effects for highly-leveraged affiliates and tighter safe-haven ratios.
    - Weichenrieder and Windischbauer (2008): find no impact in German data, citing avoidance via holding companies.
  - CFC rules:
    - Egger and Wamser (2015): German CFC rule decreased foreign subsidiaries’ real investments by about €7 million per subsidiary.
    - Albertus (2018): when a U.S. subsidiary is subject to a CFC law, the subsidiary’s U.S. investment decreases by around 12 percent.
  - Nicolay, Nusser and Pfeiffer (2017): tightening one instrument (transfer pricing) induces substitution toward other channels (debt shifting); substitution stronger for firms with high shares of intangible profits.

### IX. Conclusions and policy implications
- Main analytical conclusions:
  - Profit-shifting opportunities unambiguously reduce the cost of capital in all countries except those charging exactly the global average rate; therefore profit shifting raises global capital stocks.
  - Profit shifting creates distortions between domestic and international parts of the economy, shifting capital toward multinationals and potentially creating deadweight losses.
  - Welfare and revenue effects are ambiguous:
    - Low-tax jurisdictions are likely to gain both capital and revenues from easier profit shifting.
    - High-tax jurisdictions are likely to gain capital but lose revenue.
  - Heterogeneity in capital mobility/access to profit shifting implies curbing profit shifting can have ambiguous effects on tax revenues and welfare—mirroring ambiguous results about restricting special regimes for mobile capital.
- Practical considerations beyond the simple model:
  - Competitive lower effective taxation of mobile activities may disadvantage local businesses, encourage mergers without business reasons, and have political costs from taxing different activities differently.
  - Policy instruments often interact and produce offsetting effects (example: December 2017 U.S. tax reform reduced statutory rate by 14 percentage points, introduced FDII/ GILTI/BEAT measures, moved toward territoriality for some firms). Net effects can be complex:
    - GILTI discourages profit shifting for profits with high returns on tangible assets, potentially encouraging real investment abroad and making the cost of profit shifting a function of capital stock K.
- Overall: while profit shifting tends to lower user costs of capital and raise global investment, its efficiency and distributional consequences are ambiguous; policy choices (tax rates, anti-avoidance rules, preferential regimes) involve trade-offs that are difficult to resolve even in simple models and require careful empirical assessment.

*Source: wpiea2019287-print-pdf - References*

### References .............................................................................................................

### wpiea2019287-print-pdf - References .............................................................................................................

### I. Introduction — key findings and context
- Multinational corporations (MNCs) can reduce global tax liabilities through profit shifting (transfer price manipulation, intra-company debt, strategic location of intangible assets such as intellectual property (IP)).
- Consensus semi-elasticity of reported profits with respect to international tax differential: 1.5. That is, a 1 percentage-point reduction in the statutory CIT tax rate in a certain location is expected to raise reported profits by multinationals in that location by 1.5 percent, ceteris paribus.
- Size of revenue at stake:
  - United States: tax avoidance costs about between one quarter and one third of total corporate tax revenue in 2012 (Clausing, 2016).
  - Losses elsewhere could be much larger and possibly amount to several points of GDP, especially in lower income countries with weak enforcement capacity.
- Policy response to profit shifting includes transfer pricing regulations, thin capitalization rules, controlled foreign corporations (CFC) rules, and general anti-avoidance rules (GAAR).
- G20-OECD BEPS initiative aims to address major tax avoidance opportunities; participating countries commit to four minimum standards and common approaches to anti-avoidance legislation (OECD, 2015).
- Paper focus: impact of profit shifting and countermeasures on real investment and tax competition.
  - Main conclusions (as stated):
    - Real investment can be affected by profit shifting in various ways:
      - Investment in high-tax countries may be higher if investors can avoid some tax through profit shifting.
      - Investors may also invest more in low-tax jurisdictions because capital there facilitates shifting profits into those jurisdictions.
    - Tax competition may include permissive attitudes toward profit shifting as a component; limiting profit shifting via international coordination may intensify pressure to reduce statutory tax rates.

### II. Effects of profit shifting when capital is mobile — conceptual framework and model setup
- Framework basis: Hines and Rice (1994); Grubert and Slemrod (1998); related approaches in Suárez Serrato (2018), Desai, Foley, and Hines (2006); Peralta, Wauthy, and van Ypersele (2006); Harper and Liu (2019); Johannesen (2012).
- Representative firm setup:
  - Consider a MNC locating in n countries under a territorial system. After-tax profits:
    - ∑(1−t_j) f_j(K_j) − r ∑K_j.  (Equation (1) context)
  - f_i(·) is production function in country i: f_i′(K_i) > 0 and f_i′′(K_i) < 0.
  - r is required rate of return.
- Two-stage firm decision:
  1. Decide capital allocation K_j across countries.
  2. Choose profit-shifting strategy by reporting profitability π_i instead of true profitability (f_i(K_i)/K_i).
- Profit-shifting cost specification:
  - c(π_i, K_i) = K_i^2 2a (π_i − f_i(K_i)/K_i)^2.  (Equation (2) as presented)
  - Parameter a measures extent of costs from reporting local profits different from true profits; high values of a imply lower profit shifting costs. Stricter anti-avoidance regulations (or stronger administrative capacity) increase cost of profit shifting or lower the value of a.
  - Cost function shape is crucial: linking profit-shifting costs to capital stock ties profit shifting to real investment decisions.
- Tax-planning optimization (given capital allocation {K_j}):
  - max_{π_j} ∑_{j} K_j [ (1−t_j) π_j − r − (π_j − f_j(K_j)/K_j)^2 / (2a) ], subject to ∑_j f_j(K_j) = ∑_j π_j.  (Equation (3) as presented)
  - Constraint: firm must report total profits truthfully but can shift location of profits to minimize taxes.
- Model implications highlighted:
  - In extreme costless profit shifting, effective CIT rate for investment can become zero, reducing income-shifting adjusted cost of capital to normal rate of return and boosting investment relative to case of no profit shifting.
  - Real investment responds to the extent and cost of profit shifting; when profit shifting costs rise with capital, investment and profit shifting decisions are interlinked.
  - Alternative modeling choices (e.g., profit shifting independent of capital stocks or cost function increasing in proportion of profit shifted) yield different implications for links between profit shifting and real investment.

### III. Tax competition and policy trade-offs
- Tax competition defined as lowering taxes to attract capital investment.
- Permissive profit shifting can serve as a substitute for statutory rate cuts (lenient transfer price control can substitute for tax cuts and reduce competition over rates — per Peralta, Wauthy, and van Ypersele (2006)).
- International coordination limiting profit shifting may increase pressure on governments to reduce statutory tax rates directly.
- Stricter anti-avoidance enforcement (raising profit-shifting costs) changes firms’ reported profitability choices and therefore can alter capital allocation and tax revenue outcomes.

### IV. Structure and further analysis (as signposted)
- Section III (in source) examines heterogeneous capital (only some capital internationally mobile) and similarities between profit shifting and preferential tax regimes.
- Section IV (in source) discusses related empirical evidence.
- Section V (in source) draws overall conclusions.

*Source: wpiea2019287-print-pdf - References .........................................................................................................*

### conclusions remain the same.

### wpiea2019287-print-pdf - conclusions remain the same.

### Model and key mechanisms
- Profit shifting modeled via reported profitability: πi = fi(Ki) Ki + a(t̃ − ti) (Equation (4)); t̃ is the capital-weighted-average tax rate (∑tjKj / ∑Kj).
- Three direct implications summarized from Equation (4):
  - Direction of profit shifting depends on relative statutory tax rates: firms under-report profits where the corporate tax rate is above the capital-weighted average and over-report where it is below (reproduces Hines and Rice (1994) prediction).
  - Reported profitability magnitude is positively correlated with economic profitability.
  - Optimal reported profitability is inversely related to profit-shifting costs; higher concealment costs dampen profit reallocation.
- Firm investment choice anticipates profit-shifting decisions; substitution of optimal reported profitability yields an investment objective (Equation (5)) and a user cost condition:
  - fi′(Ki) = 1/(1−ti)[ r − a/2 (t̃ − ti)^2 ] (Equation (6)).
  - Interpretation: the income-shifting–adjusted user cost of capital is reduced by the net marginal benefit from profit shifting.

### Impact on real investment
- Profit-shifting opportunities reduce the cost of capital in all countries except those with tax rate exactly equal to the global average; hence profit shifting raises global capital stocks.
- Reduction in user cost of capital is largest where:
  - tax rates are most different from the average,
  - countries have higher tax rates,
  - anti-avoidance rules are less stringent (reflected in higher a).
- Consequence: increased real investment in both low-tax and high-tax countries (though revenue effects differ; see Government Behavior and Costs).

### Impact on government behavior and instruments
- Governments can respond by:
  - reducing statutory corporate tax rate (lower ti),
  - introducing preferential tax regimes (lower effective ti for some activities),
  - loosening anti-avoidance regulations (higher a),
  - signaling lax enforcement (higher a).
- In the model, lower ti and higher a are substitutes in reducing the profit-shifting–adjusted user cost of capital.
- Revenue expression assuming firms choose K* from (6):
  - Ri = ti f(Ki*) + a ti (t̃* − ti) Ki* (Equation (7)).
- Two-country illustrative case with f(K)=K^α gives implicit expressions for Ki (Equation (8)); numerical exploration required to solve iteratively.

### Costs of profit shifting and two-country numerical illustration
- Numerical assumptions for illustration: Country 1 tax = 30 percent; Country 2 tax = 20 percent; world required rate of return r = 10 percent; α = 1/3.
- Simulation insights (described in text and figures):
  - Low-tax country has higher capital stock; both countries’ capital stocks rise as profit shifting becomes less costly (a increases).
  - Revenues rise in the low-tax country and fall in the high-tax country as profit shifting becomes easier.
  - For high-tax countries: protecting tax bases (tightening rules) reduces capital stock but raises revenue.
  - For low-tax countries: relaxing profit-shifting rules boosts both capital stocks and revenues.
- Tax-rate variation (with a = 0.2, r = 10%, α = 1/3):
  - Presence of profit shifting makes raising the tax rate much less effective at increasing revenues than in a no-profit-shifting scenario.
  - Spillovers: raising Country 1’s tax rate yields positive spillovers on Country 2 when Country 1’s rate is above 20 percent, negative otherwise.
  - Ambiguous net effect on tax competition: profit shifting reduces revenue benefits from raising rates but reduces costs in terms of lost investment; if revenue is prioritized, downward pressure on tax rates can result.

### Heterogeneous capital and policy duality
- Not all capital is equally mobile; mobile capital (KM) may have access to profit shifting while immobile capital (KI) may not.
- Literature points:
  - Profit shifting within limits can benefit even countries that lose tax base due to increased investment and ability to raise statutory rates (Hong and Smart (2010)).
  - Uncoordinated equilibria can produce inefficiently low tax rates and lenient anti-avoidance rules (Haufler and Runkel (2012)); coordination on tightening can benefit both countries in some models.
  - Preferential tax regimes targeting mobile capital can be welfare enhancing by restricting competition to mobile base without sacrificing immobile base revenue (Keen (2001); Janeba and Smart (2003)).
- Duality between preferential regimes and profit shifting:
  - Both differentiate effective taxation of mobile vs immobile capital.
  - Key policy implication: international agreements to curb profit shifting (e.g., BEPS) may or may not increase revenues, depending on mobility and elasticities of bases.
- Advantages and disadvantages:
  - Profit shifting allows firm self-selection, potentially reducing administrative/compliance costs of special regimes.
  - Profit shifting imposes deadweight costs (non-productive structures, subsidiaries with no actual activity).

### Empirical evidence
- Empirical literature classified by channel: changes in (t̃ − ti) and changes in a (cost of profit shifting). Representative findings:
  - Investment response to tax differences:
    - Overesch (2009): real investment in Germany increases by 0.971 percent with each percentage point increase in the tax rate difference between Germany and the investor’s country.
    - Desai, Foley and Hines (2006): if likelihood of establishing a low-tax affiliate rises by 1 percent, sales and investment in the region (outside the low-tax affiliate) grow by 0.5-0.7 percent.
    - Goldbach and others (2019): multinationals increase investment in Germany following investment abroad; effect stronger with greater tax differential.
    - Becker and Riedel (2012): semi-elasticity of host-country investment wrt home-country tax rate of -0.56 (interpreted as negative investment spillovers).
  - Evidence on profit-shifting costs and anti-avoidance rules:
    - Grubert and Slemrod (1998): investment by Puerto Rican affiliates of U.S. MNCs responds significantly to firm-level proxies for cost of shifting; simulations suggest nearly half of U.S. firms in PR are there solely for profit-shifting benefits.
    - Suárez Serrato (2018): removing tax advantage of shifting profits to Puerto Rico reduced domestic investment of US multinationals by 38 percent, and domestic employment by 1.0 million jobs.
    - Transfer pricing regulation:
      - De Mooij and Liu (2018a): introducing/tightening transfer pricing regulations reduces MNC fixed investment by 15 percent relative to domestic companies.
      - Buettner and others (2018): find no significant impact of transfer pricing regulations in German affiliate data.
    - Thin-capitalization rules:
      - Buettner and others (2018) and De Mooij and Liu (2018b): negative effect on investment and employment; De Mooij and Liu find stronger negative effects for highly-leveraged affiliates and tighter safe-haven ratios.
      - Weichenrieder and Windischbauer (2008): find no impact in German data, citing avoidance via holding companies.
    - Controlled Foreign Corporation (CFC) rules:
      - Egger and Wamser (2015): German CFC rule decreased foreign subsidiaries’ real investments by about €7 million per subsidiary.
      - Albertus (2018): when a U.S. subsidiary is subject to a CFC law, the subsidiary’s U.S. investment decreases by around 12 percent.
    - Nicolay, Nusser and Pfeiffer (2017): tightening one instrument (transfer pricing) induces substitution toward other channels (debt shifting); substitution stronger for firms with high shares of intangible profits.

### Conclusions and policy implications
- Main analytical conclusions:
  - Profit-shifting opportunities unambiguously reduce the cost of capital in all countries except those charging exactly the global average rate; therefore profit shifting raises global capital stocks.
  - Profit shifting creates distortions between domestic and international parts of the economy, shifting capital toward multinationals and potentially creating deadweight losses.
  - Welfare and revenue effects are ambiguous:
    - Low-tax jurisdictions are likely to gain both capital and revenues from easier profit shifting.
    - High-tax jurisdictions are likely to gain capital but lose revenue.
  - Heterogeneity in capital mobility/access to profit shifting implies curbing profit shifting can have ambiguous effects on tax revenues and welfare—mirroring ambiguous results about restricting special regimes for mobile capital.
- Practical considerations beyond the simple model:
  - Competitive lower effective taxation of mobile activities may disadvantage local businesses, encourage mergers without business reasons, and have political costs from taxing different activities differently.
  - Policy instruments often interact and produce offsetting effects (example: December 2017 U.S. tax reform reduced statutory rate by 14 percentage points, introduced FDII/ GILTI/BEAT measures, moved toward territoriality for some firms). Net effects can be complex:
    - GILTI discourages profit shifting for profits with high returns on tangible assets, potentially encouraging real investment abroad and making the cost of profit shifting a function of capital stock K.
- Overall: while profit shifting tends to lower user costs of capital and raise global investment, its efficiency and distributional consequences are ambiguous; policy choices (tax rates, anti-avoidance rules, preferential regimes) involve trade-offs that are difficult to resolve even in simple models and require careful empirical assessment.

*Source: wpiea2019287-print-pdf - conclusions remain the same.*

### REFERENCES

### REFERENCES

### Academic studies on profit shifting, tax havens, and investment effects
- Albertus, J., 2018. “The Real Economic Effects of U.S. Tax Arbitrage by Foreign Multinational Firms.” SSRN Working Paper.  
- Clausing, K., 2016, “The Effect of Profit Shifting on the Corporate Tax Base in the United States and Beyond,” National Tax Journal, Vol. 69(4), pp. 905-934.  
- Desai, M., C.F. Foley and J. Hines, 2006, “Do tax havens divert economic activity?” Economics Letters, Vol. 90, pp. 219-224.  
- Grubert, H. and J. Slemrod, 1998, “The Effect of Taxes on Investment and Income Shifting to Puerto Rico,” Review of Economics and Statistics, Vol. 80(3), pp. 365-373.  
- Hines, J. and E. Rice, 1994, “Fiscal Paradise: Foreign Tax havens and American Business,” Quarterly Journal of Economics, Vol. 109(1), pp. 149-182.  
- Hong, Q. and M. Smart, 2010, “In Praise of Tax Havens: International Tax Planning and Foreign Direct Investment,” European Economic Review, Vol. 54, pp. 82–95.  
- Keen, M., 2017, “False Profits,” Finance and Development, Vol. 54 (3), pp 10-13.  
- Mintz, J. and M. Smart, 2004, “Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada,” Journal of Public Economics, Vol. 88, pp. 1149– 1168.  
- Overesch, M., 2009, “The Effects of Multinationals’ Profit Shifting Activities on Real Investments,” National Tax Journal, Vol (1), pp. 5-23.  
- Suárez Serrato, Juan Carlos, 2018, “Unintended Consequences of Eliminating Tax Havens,” NBER Working Papers, No. 24850.  
- Johannesen, N., 2012, “Optimal fiscal barriers to international economic integration in the presence of tax havens,” Journal of Public Economics, Vol. 96, pp. 400–416.  
- Janeba, E. and M. Smart, 2003, “Is Targeted Tax Competition Less Harmful than its Remedies?” International Tax and Public Finance, Vol. 10, pp. 259-280.  
- Peralta, S., X. Wauthy, and T. van Ypersele, 2006, “Should Countries Control International Profit Shifting?” Journal of International Economics, Vol. 68, pp. 24-37.

### Transfer pricing, thin capitalization, and anti-avoidance legislation
- Becker, J., and Fuest, C., 2012, “Transfer Pricing Policy and the Intensity of Tax Rate Competition,” Economics Letters, Vol 117(1), pp. 146-148.  
- De Mooij, R. and L. Liu, 2018a, “At a Cost: The Real Effects of Transfer Pricing Regulations”, IMF Working Papers, No. 18/69.  
- _________, 2018b, “At a Cost: The Real Effects of Thin Capitalization Rules,” mimeo, International Monetary Fund.  
- Buettner, T., M. Overesch, and G. Wamser, 2018, “Anti Profit-Shifting Rules and Foreign Direct Investment,” International Tax and Public Finance, Vol 25(3), pp. 553-580.  
- Haufler, A. and M. Runkel, 2012, “Firms’ Financial Choices and Thin Capitalization Rules under Corporate Tax Competition,” European Economic Review, Vol. 56, pp. 1087-1103.  
- Ruf, M. and D. Schindler, 2015, “Debt Shifting and Thin-Capitalization Rules—German Experience and Alternative Approaches,” Nordic Tax Journal, Vol. 2015(1), pp. 17-33.  
- Weichenrieder, A. and H. Windischbauer, 2008, “Thin-Capitalization Rules and Company Responses Experience from German Legislation,” CESifo Working Paper, No. 2456.  
- Nicolay, K., H. Nusser, O. Pfeiffer, 2017, “On the Interdependency of Profit Shifting Channels and the Effectiveness of Anti-Avoidance Legislation,” ZEW Discussion Papers, No. 17-066.  
- Buettner, T., M. Overesch, and G. Wamser, 2018, “Anti Profit-Shifting Rules and Foreign Direct Investment,” International Tax and Public Finance, Vol 25(3), pp. 553-580.  
- Becker and Riedel, 2012, “Cross-Border Tax Effects on Affiliate Investment—Evidence from European Multinationals.” European Economic Review, Vol 56, pp. 136-450.  

### IMF and policy-focused working papers and reviews
- Beer, S., R. de Mooij, and L. Liu, 2018, “International Corporate Tax Avoidance: A Review of the Channels, Effect Sizes and Blind Spots.” IMF Working Papers, No. 18/168.  
- Beer, S., A. Klemm, and T. Matheson, 2018, “Tax Spillovers from U.S. Corporate Income Tax Reform,” IMF Working Papers, No. 18/166.  
- OECD, 2015, “OECD/G20 Base Erosion and Profit Shifting Project—Explanatory Statement,” OECD.  
- De Mooij, R. and L. Liu, 2018a, “At a Cost: The Real Effects of Transfer Pricing Regulations”, IMF Working Papers, No. 18/69.  

### Country and sector-specific analyses
- Goldbach, S., A. Nagengast, E. Steinmüller, and G. Wamser, 2019, “The Effect of Investing Abroad on Investment at Home: On the Role of Technology, Tax Savings, and Internal Capital Markets,” Journal of International Economics, Vol. 116, pp. 58-73.  
- Egger, P. and G. Wamser, 2015, “The Impact of Controlled Foreign Company Legislation on Real Investments Abroad. A Multi-Dimensional Regression Discontinuity Design,” Journal of Public Economics, Vol. 129, pp. 77-91.  
- Harper, A. and L. Liu, 2019, “UK Accelerated Depreciation Policy in An International Context,” British Tax Review, Issue 3, pp. 257-264.  
- Klemm, A., 2010, “Causes, Benefits, and Risks of Business Tax Incentives,” International Tax and Public Finance, Vol. 17(3), pp. 315-336.  
- Nicolay, K., H. Nusser, O. Pfeiffer, 2017, “On the Interdependency of Profit Shifting Channels and the Effectiveness of Anti-Avoidance Legislation,” ZEW Discussion Papers, No. 17-066.  

*Source: wpiea2019287-print-pdf - REFERENCES*

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_Source: https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019287-print-pdf.pdf_