The Exorbitant Tax Privilege

NBER Working Paper No. 24983
Issued in September 2018
NBER Program(s):Development of the American Economy, International Finance and Macroeconomics, Public Economics

We estimate and attempt to explain the evolution of the taxes paid by U.S. multinationals on their foreign profits since 1966. In the oil sector, taxes paid to oil-producing States have been contained, allowing U.S. firms to earn high after-tax returns. Foreign taxes fell abruptly after the first Gulf War. In sectors other than oil, the effective foreign tax rate has fallen by half since the late 1990s. Almost half of this decline owes to the rise of profit shifting to tax havens. The low foreign taxes paid by U.S. multinationals can explain half of the U.S. cross-border return differential.

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Document Object Identifier (DOI): 10.3386/w24983