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WORK IN PROGRESS
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PUBLISHED
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Fiscal Consequences of Corporate Tax Avoidance (joint work with Katarzyna Bilicka and Petr Janský)
Currently: R&R Journal of Public Economics
Paper
Abstract
Multinational corporations shift a large share of their foreign profits to tax havens and, due to this corporate tax avoidance, governments worldwide lose a portion of their tax revenue. In this paper, we study the consequences of multinational tax avoidance for the structure of government tax revenues. First, we show that, at the country level, countries with large revenue losses due to profit shifting have lower corporate tax revenues and rates. At the same time, they raise a larger share of tax revenues from personal and indirect taxes and have higher indirect tax rates. Second, to establish causality, we use German municipal data and analyse the effects of changes in municipal tax rates levied on corporate profits on local tax revenue structure. We show that following a tax rate increase, municipalities with a large presence of aggressive multinational corporations experience a significant decline in that tax revenue share.
(JMP) Online Cash Register Policy in Russia: Impact on Firm Profits and Exit Decisions
(solo-authored paper)
Paper
Abstract
To achieve better tax compliance, the Russian government required small firms to use online cash registers (OCRs) for business-to-consumer transactions from 2017. For firms, the installation of the OCR leads to an increase in fixed costs. This might push firms to switch to the shadow market (partially or fully), to exit the market, to report more costs and less profits, or to combine several strategies. Using the TWFE and Regression Discontinuity in Time techniques, I estimate the effects of the OCR policy on reported profits, profits tax, and firms' exit decisions. Exogenous variation for causal inference is possible thanks to different years of policy implementation (2017, 2018, 2019). At the regional level, I find that tax revenues increase. However, different treated firms pay taxes according to different tax regimes, and for some regimes there are no effects for tax revenues. At the firm level, I find that firms report less profits, profit tax, and VAT after policy implementation.
Effective Tax Rates and Tax Revenues Across Countries With Different Income Levels (joint work with Abrams Tagem)
Abstract
In this paper, we analyze how changes in effective tax rates (ETRs) affect tax revenues across countries with different income levels. Specifically, we ask whether countries of higher income level benefit more from ETRs increase in tax revenues than developing countries. For our cross-country analysis, we utilize data from 143 countries (58 developing countries, 37 upper-middle income countries, and 48 high-income countries) over the 1980-2018 period. We find that developing countries benefit more from ETR increase in their tax revenues than high income countries but less than upper-middle income countries. The research findings may be useful for policymakers, researchers, and practitioners engaged in fiscal management.
Currently: R&R Journal of Public Economics
Paper
Abstract
Multinational corporations shift a large share of their foreign profits to tax havens and, due to this corporate tax avoidance, governments worldwide lose a portion of their tax revenue. In this paper, we study the consequences of multinational tax avoidance for the structure of government tax revenues. First, we show that, at the country level, countries with large revenue losses due to profit shifting have lower corporate tax revenues and rates. At the same time, they raise a larger share of tax revenues from personal and indirect taxes and have higher indirect tax rates. Second, to establish causality, we use German municipal data and analyse the effects of changes in municipal tax rates levied on corporate profits on local tax revenue structure. We show that following a tax rate increase, municipalities with a large presence of aggressive multinational corporations experience a significant decline in that tax revenue share.
(JMP) Online Cash Register Policy in Russia: Impact on Firm Profits and Exit Decisions
(solo-authored paper)
Paper
Abstract
To achieve better tax compliance, the Russian government required small firms to use online cash registers (OCRs) for business-to-consumer transactions from 2017. For firms, the installation of the OCR leads to an increase in fixed costs. This might push firms to switch to the shadow market (partially or fully), to exit the market, to report more costs and less profits, or to combine several strategies. Using the TWFE and Regression Discontinuity in Time techniques, I estimate the effects of the OCR policy on reported profits, profits tax, and firms' exit decisions. Exogenous variation for causal inference is possible thanks to different years of policy implementation (2017, 2018, 2019). At the regional level, I find that tax revenues increase. However, different treated firms pay taxes according to different tax regimes, and for some regimes there are no effects for tax revenues. At the firm level, I find that firms report less profits, profit tax, and VAT after policy implementation.
Effective Tax Rates and Tax Revenues Across Countries With Different Income Levels (joint work with Abrams Tagem)
Abstract
In this paper, we analyze how changes in effective tax rates (ETRs) affect tax revenues across countries with different income levels. Specifically, we ask whether countries of higher income level benefit more from ETRs increase in tax revenues than developing countries. For our cross-country analysis, we utilize data from 143 countries (58 developing countries, 37 upper-middle income countries, and 48 high-income countries) over the 1980-2018 period. We find that developing countries benefit more from ETR increase in their tax revenues than high income countries but less than upper-middle income countries. The research findings may be useful for policymakers, researchers, and practitioners engaged in fiscal management.
Dubinina E., Garcia-Bernardo J., Janský P. 2024. The Excess Profits during COVID-19 and their Tax Revenue Potential. Empirica.
Paper
Abstract
The COVID-19 pandemic has affected most companies' profits negatively, but other companies did exceptionally well, recording excess profits during the pandemic. In this paper we estimate the scale of these excess profits, their determinants, and the revenue potential of excess profits tax. To estimate excess profits, we develop a trend-adjusted average earnings methodology. We apply the methodology to the consolidated Orbis data to estimate that large multinational corporations (MNCs) with subsidiaries in the EU made excess profits of $447 billion in 2020 (41.7% of their total profits in 2020). We show that primary business activities is a key determinant of MNCs' excess profits made during the COVID-19 pandemic.
We show that manufacturing, information, and financial sectors are responsible for the majority of excess profits. With country-by-country reporting data we estimate the excess profits arising from each EU member state and find that EU member states could together raise $6 billion with an excess profits tax of 10%, an additional tax levied by governments on corporations’ excess profits. The research findings may be useful for policymakers in addressing the question of financing economic recovery from the COVID-19 pandemic.
Dubinina E. 2023. Impact of Special Economic Zones on domestic market: Evidence from Russia. Post-Communist Economies, 35:1, 82-99.
Paper
Abstract
Place-based policies can be an effective instrument for governments to encourage the economic development of a country. A Special Economic Zone (SEZ) is a place-based policy aimed at attracting FDI, employment growth, and supporting new economic reforms. In addition, for emerging economies an SEZ could be a potential catalyst for development; foreign investors can have a drastic impact on the productivity of domestic firms, revenues, and market shares through the implementation of new technologies and the creation of new firms. However, the effects of SEZs on the domestic market at the firm level are largely understudied. In this research, I leverage the large-scale SEZ policy implemented by the Russian government in 2005 that aims to attract foreign investors to specific parts of the country by offering tax relief. The primary objective of this research is to quantify the effects of the Russian SEZ policy on local firms. To examine the effects, I use the generalised Difference-in-Difference methodology and apply it to a panel of firms in Russia for the 2006–2019 period. The data includes time-varying SEZ treatment on firms, firm characteristics, and accounting data. The primary outcome variables of interest are revenues, profits, and total factor productivity. The research findings could contribute to the urban economic literature on place-based policies and may be helpful to policymakers in determining the effectiveness of SEZ place-based policies.
Drapkin I., Dubinina E. 2020. Econometric Modelling of a Region’s Potential to Attract Foreign Direct Investments. Economy of Region. 16. 310-324. 10.17059/2020-1-23.
Paper
Abstract
In the Russian economy, foreign direct investments (FDI) are distributed very unevenly between the regions. This inequality is caused by differences in the regions’ economic characteristics, as well as by varying effectiveness of regional policies to attract FDI. The assessment of a region’s potential to attract FDI could serve as a guide for analysing the effectiveness of local authorities in terms of creating a positive environment for foreign investors. The research focuses on constructing and assessing an econometric model of FDI determinants at the regional level. The theoretical foundation for this model is a gravity approach. We used estimates obtained with the help of Poisson’s method of quasi-maximum likelihood estimation for calculating the potential of foreign direct investments. Using the data for the period from 2015 to 2017, we identified the crucial factors influencing the inflow of foreign direct investment in Russia at the regional level: availability of the workforce, level of bureaucracy, level of income, population density, and the financial results of the regional companies. Based on the calculated potentials, we identified successful and lagging Russian regions in terms of FDI inflows. We analysed and systemised the volume of FDI inflows as well as the ratio of actual/potential FDI of the Russian regions. The largest Russian regions in terms of FDI inflows have limitations in growth because they either exceed their potential level already (Moscow oblast, Krasnodar krai, Samara oblast) or are close to it (Moscow city, Leningrad oblast, Saint-Petersburg city). At the same time, more than a half of the Russian regions (41 out of analysed 82) not only have very low potential to attract FDI inflows, but also operate at a level lower than potential. A significant increase in FDI inflows across the country may be provided by a small group of regions with medium and high levels of FDI inflows but with considerable unrealized potential. This group includes such regions as Republic of Bashkortostan, Republic of Tatarstan, Sverdlovsk oblast, Udmurt republic, KhMAO–Yugra, Orenburg oblast, and Belgorod oblast. The suggested methodology for assessing a region’s FDI potential and comparing it with actual FDI inflows can be used for goal setting for relevant regional authorities and subsequent control of their efforts to attract FDI.
Paper
Abstract
The COVID-19 pandemic has affected most companies' profits negatively, but other companies did exceptionally well, recording excess profits during the pandemic. In this paper we estimate the scale of these excess profits, their determinants, and the revenue potential of excess profits tax. To estimate excess profits, we develop a trend-adjusted average earnings methodology. We apply the methodology to the consolidated Orbis data to estimate that large multinational corporations (MNCs) with subsidiaries in the EU made excess profits of $447 billion in 2020 (41.7% of their total profits in 2020). We show that primary business activities is a key determinant of MNCs' excess profits made during the COVID-19 pandemic.
We show that manufacturing, information, and financial sectors are responsible for the majority of excess profits. With country-by-country reporting data we estimate the excess profits arising from each EU member state and find that EU member states could together raise $6 billion with an excess profits tax of 10%, an additional tax levied by governments on corporations’ excess profits. The research findings may be useful for policymakers in addressing the question of financing economic recovery from the COVID-19 pandemic.
Dubinina E. 2023. Impact of Special Economic Zones on domestic market: Evidence from Russia. Post-Communist Economies, 35:1, 82-99.
Paper
Abstract
Place-based policies can be an effective instrument for governments to encourage the economic development of a country. A Special Economic Zone (SEZ) is a place-based policy aimed at attracting FDI, employment growth, and supporting new economic reforms. In addition, for emerging economies an SEZ could be a potential catalyst for development; foreign investors can have a drastic impact on the productivity of domestic firms, revenues, and market shares through the implementation of new technologies and the creation of new firms. However, the effects of SEZs on the domestic market at the firm level are largely understudied. In this research, I leverage the large-scale SEZ policy implemented by the Russian government in 2005 that aims to attract foreign investors to specific parts of the country by offering tax relief. The primary objective of this research is to quantify the effects of the Russian SEZ policy on local firms. To examine the effects, I use the generalised Difference-in-Difference methodology and apply it to a panel of firms in Russia for the 2006–2019 period. The data includes time-varying SEZ treatment on firms, firm characteristics, and accounting data. The primary outcome variables of interest are revenues, profits, and total factor productivity. The research findings could contribute to the urban economic literature on place-based policies and may be helpful to policymakers in determining the effectiveness of SEZ place-based policies.
Drapkin I., Dubinina E. 2020. Econometric Modelling of a Region’s Potential to Attract Foreign Direct Investments. Economy of Region. 16. 310-324. 10.17059/2020-1-23.
Paper
Abstract
In the Russian economy, foreign direct investments (FDI) are distributed very unevenly between the regions. This inequality is caused by differences in the regions’ economic characteristics, as well as by varying effectiveness of regional policies to attract FDI. The assessment of a region’s potential to attract FDI could serve as a guide for analysing the effectiveness of local authorities in terms of creating a positive environment for foreign investors. The research focuses on constructing and assessing an econometric model of FDI determinants at the regional level. The theoretical foundation for this model is a gravity approach. We used estimates obtained with the help of Poisson’s method of quasi-maximum likelihood estimation for calculating the potential of foreign direct investments. Using the data for the period from 2015 to 2017, we identified the crucial factors influencing the inflow of foreign direct investment in Russia at the regional level: availability of the workforce, level of bureaucracy, level of income, population density, and the financial results of the regional companies. Based on the calculated potentials, we identified successful and lagging Russian regions in terms of FDI inflows. We analysed and systemised the volume of FDI inflows as well as the ratio of actual/potential FDI of the Russian regions. The largest Russian regions in terms of FDI inflows have limitations in growth because they either exceed their potential level already (Moscow oblast, Krasnodar krai, Samara oblast) or are close to it (Moscow city, Leningrad oblast, Saint-Petersburg city). At the same time, more than a half of the Russian regions (41 out of analysed 82) not only have very low potential to attract FDI inflows, but also operate at a level lower than potential. A significant increase in FDI inflows across the country may be provided by a small group of regions with medium and high levels of FDI inflows but with considerable unrealized potential. This group includes such regions as Republic of Bashkortostan, Republic of Tatarstan, Sverdlovsk oblast, Udmurt republic, KhMAO–Yugra, Orenburg oblast, and Belgorod oblast. The suggested methodology for assessing a region’s FDI potential and comparing it with actual FDI inflows can be used for goal setting for relevant regional authorities and subsequent control of their efforts to attract FDI.