Jay Pil Choi, Jota Ishikawa, Hirofumi Okoshi, 27 July 2020

It is well known that multinational enterprises take advantage of corporate tax systems worldwide to avoid taxation. Transfer pricing is one common method used for profit-shifting, as intra-firm transactions are shielded from the market mechanism. Numerous guidelines and regulations have been implemented to tackle such profit-shifting, but challenges remain. This column theoretically explores how one such regulation, the ‘arm’s length principle’, affects the licensing strategies of multinationals in the presence of a tax haven. It shows that the mere existence of this principle may lead to further profit-shifting and may worsen the welfare of high-tax countries. 

Jay Pil Choi, Taiji Furusawa, Jota Ishikawa, 26 June 2020

To address the issue of tax avoidance by multinational enterprises, governments impose transfer-pricing rules to control transfer-price manipulation. Using a theoretical framework allowing for the possibility of profit shifting, this column explores the interplay between transfer-pricing regulations and tax competition. It finds that the nature of tax competition can depend on the tightness of transfer-pricing regulation, and a tax-haven country does not always prefer lax transfer-pricing regulation. Thus, the incentives of the host and FDI source country can be aligned to set up global regulatory standards for transfer pricing.

Thomas Tørsløv, Ludvig Wier, Gabriel Zucman, 21 April 2020

Despite the legal frameworks and large amounts of lost tax revenue, profit-shifting practices persist around the world. This column argues that fiscal authorities of high-tax countries face an incentive problem in combatting profit shifting to tax havens. Enforcement efforts are focused on relocating profits booked in other high-tax countries rather than those in tax havens. This can ultimately result in lower global tax payments of multinational companies. The results call for a global corporate tax reform in order to save resources that currently go to wasteful and inconsequential tax enforcement.

, 03 February 2020

While policymakers go the extra mile  to  try to attract investments, they often hold serious  misconceptions  about the impact of multinationals

Dany Bahar, 13 December 2019

A key influence on the location decisions of multinationals is thought to be the ‘knowledge–distance trade-off’ – how far apart headquarters are from foreign subsidiaries, and the impact this has on ease of communication between them on issues related to management, monitoring, coordination, troubleshooting, and so on. This column argues that it is differences in time zones as much as the transport costs related to physical distance that play an important role in this trade-off. Human interaction is vital for the transfer of tacit knowledge that underpins economic development.

Beata Javorcik, 13 September 2019

Economists argue whether foreign direct investment in developing economies exports pollution or generates green growth. Beata Javorcik talks to Tim Phillips about a surprising conclusion from factory-level research.

Arlan Brucal, Beata Javorcik, Inessa Love, 16 August 2019

The link between foreign ownership and environmental performance remains a controversial issue. Data from the Indonesian manufacturing census show that plants undergoing foreign acquisitions reduce their energy intensity by about 30% two years after acquisition by multinationals. This column argues that foreign direct investment can serve as a channel for the international transfer of environmentally friendly technologies and practices, thus directly contributing not only to economic growth but also to environmental progress. 

Bruno Merlevede, Victoria Purice, 29 March 2019

Supplying inputs to multinational firms has been shown to increase the productivity of domestic firms, while borders have been shown to substantially reduce trade activities. This column investigates whether spillover effects from multinationals on local firms occur when firms are separated by a national border. Using data for seven Central and Eastern European countries and their neighbours, it finds that cross-border spillovers only occur after EU integration, and that participation in the Schengen Area magnifies these effects. The results bear testimony to successful EU integration and warn about potential productivity costs to local firms should border controls be reinstated.

Çağatay Bircan, 31 January 2019

Evidence is mixed on the effects of multinational activity on productivity and competitiveness in host economies. This column provides new evidence that multinationals’ productivity effects may be previously under-estimated. Results suggest that ownership structure of multinationals and foreign acquisitions play an important role in driving aggregate productivity growth.

, 13 December 2018

David Arnold, Riccardo Crescenzi and Sergio Petralia of LSE's GILD team summarise cutting-edge research that examines the growing disparity between the places plugged into 21st century flows of investment, talent and knowledge and those that aren’t.

Andrew Bernard, J. Bradford Jensen, Stephen Redding, Peter Schott, 22 December 2016

Events of the last year have raised questions about the future growth of international trade. This column examines the role played by ‘global firms’ that both import and export, and are likely to be part of multinationals, in the international economy. In a world of interdependent firm decisions, small reductions in tariffs or trade costs can have magnified effects on trade flows, as they induce firms to serve more markets with more products at greater volumes, and also to source greater volumes of intermediate inputs from more countries. At the same time, policies to restrict imports can end up hurting producers for whom both importing and exporting are a central pillar of their overall business strategy.

Yuriy Gorodnichenko, Jan Svejnar, 26 September 2015

While there is substantial evidence that multinationals are more productive than domestic firms, the evidence on productivity spillovers remains mixed. This column estimates the effects of foreign presence on the innovation of local firms. It suggests that spillovers from foreign firms to domestic firms are limited to domestic firms immediately connected to foreign firms. Requirements for foreign firms to have significant local content may therefore be justified.

Emily Blanchard, Xenia Matschke, 30 April 2015

Recent decades have witnessed a dramatic shift in the nature of world trade brought about by the unbundling of international production. One implication is that lobbying by a nation’s firms can be partly influenced by a desired to protect their production facilities abroad. This column presents evidence that US imports from countries and industries with greater offshoring activity by US multinationals face distinctly lower trade barriers. 

Maarten van ’t Riet, Arjan Lejour, 05 January 2015

The recent actions of the US Treasury to rein in corporate tax inversions leave their rationale largely intact. This column discusses new evidence suggesting that the potential tax benefits of inversions are still huge. The recent Treasury measures raised legal obstacles, but the heart of the problem remains unaddressed. At some point a new technique is likely to be found to circumvent the new measures – just as happened with earlier measures. This is a worldwide problem.

Ronald Davies, Julien Martin, Mathieu Parenti, Farid Toubal, 05 January 2015

Allegations of tax-avoiding transfer pricing by multinational firms are common, but economic evidence is scarce. This column discusses detailed price data for intra-firm and arm’s length transactions that reveals tax-driven transfer pricing, and suggests that it may be reduced by focusing on a small number of large firms in a small number of tax havens. 

Ruud de Mooij, Michael Keen, Victoria Perry, 14 September 2014

Multinational companies’ ability to pay little corporate income tax has grabbed headlines recently. This column argues that the details of international tax rules matter for macroeconomic performance – especially in low-income countries. This emphasises the importance of the G20–OECD Action Plan on Base Erosion and Profit Shifting. However, dealing properly with tax spillovers will require a deeper global debate about the international tax architecture itself.

Theodore Moran, Lindsay Oldenski, 09 August 2014

There is indisputable evidence that manufacturing employment as a share of total employment in the US has been declining. This column argues that focusing on employment masks important signs of growth of the manufacturing sector. Using most up-to-date data, the authors reason that the US manufacturing base is growing larger, more productive and competitive. The expansion of operations abroad by US manufacturing multinationals leads to particularly strong increases in economic activity – including creation of greater numbers of high-paying manufacturing jobs – by those same firms in the US domestic economy.

Agnès Bénassy-Quéré, Alain Trannoy, Guntram Wolff, 22 July 2014

Tax harmonisation has been controversial since the establishment of the European Economic Community, and corporation tax proposals are currently on the table in the EU. Although tax competition can be beneficial, tax harmonisation could curb tax competition that leads to the under-provision of public goods or to burden-shifting from mobile to immobile tax bases. As yet, no agreement has been reached on any ambitious harmonisation plan for mobile tax bases. This column explores the possibility of implementing partial tax harmonisation for corporate taxation and the taxation of the banking sector.

Bernhard Dachs, Georg Zahradnik, 06 July 2014

The Global Crisis brought a halt to three decades of R&D internationalisation, in which foreign firms’ share of total R&D expenditure had increased in almost all countries where data is available. However, this column argues that the crisis did not lead to a new global distribution of overseas R&D expenditure, despite the erosion of the EU’s share. The persistence of R&D expenditure is attributed to the costs of relocating R&D and to the autonomy of foreign subsidiaries.

Theodore Moran, Lindsay Oldenski, 04 March 2014

The US has once again ranked among the top two recipient countries for foreign direct investment. This column examines the effects of these large FDI inflows on the US domestic economy. Foreign multinationals are – alongside US-headquartered American multinationals – the most productive and highest-paying segment of the US economy. In addition, they provide positive spillovers to US firms. About 12% of the total productivity growth in the US from 1987 to 2007 can be attributed to productivity spillovers from inward FDI.



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