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Check out my new NBER Working Paper: "Unintended Consequences of Eliminating Tax Havens" NBER: http://www.nber.org/papers/w24850 Ungated: http://www.jcsuarez.com/Files/Suarez_Serrato_UCETH.pdf … Short summary in 5 tweets belowpic.twitter.com/CIKXQ7cP68
Main point is that limits to profit shifting increase the effective cost of investing in the US since multinationals can’t shift profits to tax havens. This figure shows limits to profit shifting raise cost of investing from \tilde \rho_0 to \tilde \rho_1:pic.twitter.com/A2iCajQWhy
We study a policy change that limited profit shifting through Puerto Rico (Section 936) Repealing Section 936 raised taxes of exposed US Multinationals by 10pp Before repeal, these firms hired millions of workers in continental US & invested 16% of all investment in compustatpic.twitter.com/HfARO7vuau
Main result #1: Affected firms reduce US activity. Relative to similar firms, exposed firms responded by: (i) lowering global investment by 23% (ii) increasing share of investment abroad by 17.5% (iii) reducing US employment by 9.1%pic.twitter.com/g2r3b3ap2G
Main result #2: Firm-level effects are amplified in local labor markets. More exposed local labor markets experienced long-lasting economic declines: (i) Lower employment and income growth (ii) Lower wages and housing values (iii) More dependence on government transferspic.twitter.com/JJKbjx3Zl5
Please see paper for more on robustness, placebo checks, and implications for the Tax Cuts and Jobs Act (e.g GILTI)! Comments and suggestions are always welcome!
Great to see more economists disc. conseq., of repealing IRS Sec 936 on growth, emp., income. For 20 years, Sec 936 gave tax breaks to US MNCs in #PuertoRico. In my book w/@HavidanUAlbany & A. Davila, we disc. how repeal contrib. to #LaCrisisBoricua, still ongoing after 12 years.
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