Sebastian Dyrda (University of Toronto), 12.06.2024

We study the macroeconomic consequences of tax policies designed to reduce international profit shifting by multinational enterprises (MNEs) using a model that emphasizes transfer pricing of intangible capital. We prove analytically that such policies would reduce MNEs’ intangible investment, reducing output both at home and abroad. We then quantify the effects of the OECD’s proposed reforms: reallocating the rights to tax MNEs’ profits to the countries where they sell their products; and a minimum global corporate income tax. These policies would reduce profit shifting by more than two-thirds, but would also reduce output in all regions of the global economy.