A Macroeconomic Perspective on Taxing Multinational Enterprises

We develop a framework to study the aggregate implications of taxing multinational enterprises (MNEs) that shift profits to tax havens by transferring ownership of nonrival intangible capital. We first prove analytically that profit shifting increases intangible investment, leading to higher output at the MNE level. We then calibrate our model to reproduce salient country-level facts about production, trade, FDI, and, most importantly, profit shifting. We use our calibrated model to evaluate the consequences of two OECD proposals designed to reduce profit shifting: allocating the rights to tax some of an MNE's profits to the countries in which it sells its products; and a 15% 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