Giorgia Maffini

Profit Shifting and Measured Productivity of Multinational Firms

This paper examines the differences in total factor productivity (TFP) between multinationals and domestic firms before and after tax rate changes to investigate whether the host country corporate tax rate has a significant in fluence on the measured TFP advantage of multinational companies. Using a sample of approximately 16,000 European firms (1998-2004), we find that a 10 percentage points cut in the statutory corporate tax rate would increase multinationals measured TFP by about 10 per cent relative to domestic firms, consistent with profit-shifting by multinationals. At the sample mean, this would imply a 44 per cent increase in the TFP advantage of multinationals.

Territorial Tax System Reform and the Financial Behavior of Multinational Firms

We investigate whether the move from the worldwide tax system to the territorial tax system in Japan in 2009 affects the financial behavior of overseas affiliates of Japanese multinational companies. The reform substantially reduces the tax costs of profit repatriation in the form of dividends for Japanese overseas affiliates. We use this reform as a quasi-natural experiment to investigate whether and how the tax system affects multinationals’ cash holding and financing policies. Findings from our study sheds some light on possible outcomes of similar tax reforms in countries such as the United States. Based on a sample of Japanese overseas affiliates located in both Europe and Asia, we do not find a robust link between the tax costs of dividend repatriation and the cash-asset ratio for Japanese overseas affiliates before the territorial tax system reform. Moreover, we do not find that Japanese overseas affiliates reduced their cash-holdings since the territorial tax reform, no matter whether they are located in countries with high tax costs of repatriation or in countries with low tax costs of repatriation. We further conduct Difference-in-Differences analysis to compare Japanese overseas affiliates with similar US overseas affiliates located in the same host countries. The comparison between the Japanese and US overseas affiliates are reasonable as the tax system on foreign profits were similar in the two countries before Japan moved to the territorial tax system. We do not find significant difference in the cash-holding patterns and capital structures between Japanese and similar US overseas affiliates. While the territorial tax system reform did not change multinationals’ financial behavior during our sample period, the reform can enhance the competitiveness of Japanese firms in foreign countries by reducing their tax burden of repatriation.

Regulation, tax and capital structure: evidence from administrative data on Italian banks

This paper explores the effect of taxation on the capital structure of banks. For identification, we exploit exogenous regional variations in the rate of the Italian tax on productive activities (IRAP) using administrative, confidential data on regional banks provided by the Bank of Italy (1998-2011). We find that IRAP rate changes do not always lead to a change in banks’ leverage: banks close to the regulatory constraints do not change their leverage when tax rates change. This holds true for both tax cuts and tax hikes. Among less constrained entities, the leverage of smaller banks is more responsive to changes in tax rates than that of larger banks. Overall, the tax system has little effect on the capital structure of banks, especially for larger and possibly more systemically important institutions; regulatory constraints instead seem to be a first-order determinant. Our findings cast doubt on the role of the tax system as a cause or tool for addressing the negative externalities of excessive leverage in the banking system.