TAXGLOBAL · Understanding the global effect of corporate tax reforms

Understanding the global effect of corporate tax reforms

The taxation of multinational firms is a hotly debated subject in economic policy. For example, the 2017 tax reform in the U.S. is supposed to have large effects on businesses in an interconnected, globalized world: It substantially increased the profits of German car makers while at the same time it is expected to lure away corporate investment from other countries. Countries in the EU are working towards their own tax reforms (e.g. France, United Kingdom), in order to increase the competitiveness of local firms. However, decreases in government income from taxation will lead to a decrease in the provision of public services such as education and health, impacting in this way the development and prosperity of human capital. In reality, in today’s globalized interconnected world, firms often trade, operate and sell across borders. Therefore, the level of economic activity of a firm in a particular country is determined by tax policies in all countries where it has affiliates. As a consequence, these policies affect the prosperity of societies in many countries. Despite such effects and the wide-spread cross-border operations of firms, the lack of appropriate data has so far precluded a knowledge-based understanding of the international repercussions of corporate tax policies. Through TAXGLOBAL, I will provide a comprehensive analysis of the cross-border effect of firm taxation on economic activity. Given that tax reform is high on the agenda, such insights are now needed more than ever. Moreover, while the EU aims at ensuring a smooth functioning of the common market by harmonizing product and labour market regulation, corporate tax policy remains under the sovereignty of its member states which use it to compete for multinational firms’ operations. Against this background, it is essential to fully understand and quantify the cross-border impact of corporate tax policy in order to enhance job creation, sustainable investment and productivity growth in a globalized economy. TAXGLOBAL will provide a new understanding of the issue by compiling unique high-quality data from Norway and analysing it in a quasi-experimental research design. In particular, TAXGLOBAL will contribute by (i) merging several administrative data sets on the domestic and foreign operations of companies which are obtained directly from the administrative and statistical authorities to which they re-port. This new and unique database will provide an unprecedented opportunity to study in detail the cross-border links on the level of the individual firm; (ii) compiling a comprehensive and complementary database of all corporate tax reforms in a broad selection of countries to which firms are exposed via foreign affiliates; (iii) combining the information and analysing it using state-of-the-art regression models. This integral study of cross-border tax effects using administrative data for multinational firms is a completely novel approach and will advance the research field with new insights into the global effect of tax policy on real business activity, as well as provide policy makers with a novel understanding of the implications of their decisions in integrated economies such as the EU.

Data: CORDIS, © European Union