Date of Award

5-11-2025

Date Published

June 2025

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

Advisor(s)

Ryan Monarch

Second Advisor

Jeffrey Kubik

Keywords

Corporate Taxes;Infra-Firm Trade;International Trade;Profit-Shifting;Transfer Pricing

Subject Categories

Economics | Social and Behavioral Sciences

Abstract

This dissertation studies issues regarding the tax avoidance behavior of multinational corporations. It is composed of three chapters. The first examines the differential impact of the Tax Cuts and Jobs Act of 2017 on firm profit-shifting behavior. The second constructs a theoretical model in which the introduction of tax havens to a standard trade model leads to an oversupply of multinational exports and a decrease in public welfare. The third sheds light on multinational responses to the Great Recession of 2008. The US corporate income tax rate used to be the highest in the developed world, yet multinationals were able to lower their tax burden via the strategic transfer pricing of intra-firm trade. The Tax Cuts and Jobs Act of 2017 (“TCJA”) changed corporate profit-shifting incentives by reducing the US corporate income tax rates as well as by moving from a worldwide to a territory taxation regime. Using Census micro-data, I examine how these provisions of the TCJA differentially affected corporate profit shifting between countries with consistently lower corporate income tax rates and those which post-TCJA now had higher tax rates than the US. I find that in the years after the TCJA came into effect, profit shifting to countries with now-higher corporate tax rates fell by between 10.4 to 12.8 percentage points relative to countries whose tax rates remained lower; however, profit-shifting to those countries increased between 8.8 to 11.6 percentage points relative to the pre-period. Under what circumstances does tax avoidance behavior cause a rise in exports? I build a three-country Melitz-type model consisting of two non-haven countries and one tax haven. Goods are traded between the non-havens, while taxes can be shifted to the haven. With low elasticities of substitution, firms that would remain non-exporters are incentivized to become multinationals in order to shift their domestic profits to the tax haven. While the model is not formally closed, I show that the introduction of tax havens can lead to reductions in public good provision, increases in prices, and a decrease in welfare. The Great Recession was characterized by the reversal of many long-standing trends. Unemployment rose, trade fell, and larger, more productive firms cut jobs and took losses more than smaller ones. Simultaneous to these phenomena, I find a reversal of the regular pattern with respect to profit shifting behavior. Under normal circumstances, firms use internal transactions to reallocate profits to lower-tax jurisdictions. During the Great Recession, however, I find a reversal of this pattern, with lower tax jurisdictions now moving money into the United States. Prior to the Great Recession, firms exporting to a country with a 10 percent lower corporate income tax difference than the United States would underprice their exports by approximately 4.4 percentage points; during the Great Recession, we would expect an overpricing of that same good by approximately 13.3 percentage points.

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