Are less developed countries more exposed to multinational tax avoidance?
Niels Johannesen, Thomas Tørsløv and Ludwig Wier's paper has been accepted in World Bank Economic Review
Are less developed countries more exposed to multinational tax avoidance? Method and Evidence from microdata.
Abstract
We use a global dataset with information about 210,000 corporations in 142 countries to investigate whether tax avoidance by multinational
rms is more prevalent in less developed countries. We propose a novel approach to studying cross-
border pro
t shifting, which has relatively low data requirements and is therefore particularly well-suited for the context of developing countries. Our results consistently show that the sensitivity of reported pro
ts to pro
t shifting incentives
is negatively related to the level of economic and institutional development. This may explain why many developing countries opt for low corporate tax rates in spite of urgent revenue needs and severe constraints on the use of other tax bases.