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The Missing Profits of Nations

Abstract : By exploiting new macroeconomic data known as foreign affiliates statistics, we showthat affiliates of foreign multinational firms are an order of magnitude more profitable thanlocal firms in low-tax countries. By contrast, affiliates of foreign multinationals are lessprofitable than local firms in high-tax countries. Leveraging this differential profitability,we estimate that close to 40% of multinational profits are shifted to tax havens globally.We analyze how the location of corporate profits would change if all countries adopted thesame effective corporate tax rate, keeping global profits and investment constant. Profitswould increase by about 15% in high-tax European Union countries, 10% in the UnitedStates, while they would fall by 60% in today’s tax havens. We provide a new internationaldatabase of GDP, trade balances, and factor shares corrected for profit shifting, showingthat the rise of the corporate capital share is significantly under-estimated in high-tax countries.
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Submitted on : Friday, November 27, 2020 - 11:02:01 AM
Last modification on : Saturday, November 28, 2020 - 3:02:13 AM


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  • HAL Id : halshs-03022293, version 1



Thomas Torslov, Ludvig Wier, Gabriel Zucman. The Missing Profits of Nations. 2020. ⟨halshs-03022293⟩



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