Using a large panel dataset on worldwide operations of multinational firms, this paper studies one of the most advocated anti-tax-avoidance measures: Controlled Foreign Corporation rules. By including income of foreign low-tax subsidiaries in the domestic tax base, these rules create incentives to move income away from low-tax environments. Exploiting variation around the tax threshold used to identify low-tax subsidiaries, we find that multinationals redirect profits into subsidiaries just above the threshold and change incorporation patterns to place fewer subsidiaries below and more above the threshold. Roughly half of the resulting increase in global tax revenue accrues to the rule-enforcing country.

Journal of Public Economics 2019, Vol. 173, p. 44-71. 


(with Panos Mavrokonstantis, INSEAD)

We study behavioural responses to a widely-used tax enforcement policy that combines elements of self- and third-party reporting. Taxpayers self-report to the tax authority but must file documentation issued by a third-party to corroborate their claims. Exploiting salary-dependent
cutoffs governing documentation requirements when claiming deductions for charitable contributions in Cyprus, we estimate that deductions increase by £0.7 when taxpayers can claim £1 more without documentation. Second, using a reform that retroactively shifted a threshold activating documentation requirements, we estimate that at least 64% of the response is purely a reporting adjustment. Finally, reporting thresholds affect the responsiveness to tax subsidies.


From National to Multinational Firm

Multinational corporations today account for a third of worldwide output and close to a fourth of employment (OECD, 2018). What is driving this surge in firms that cross borders, and how does it affect domestic economies?

Tax Enforcement with Multiple Evasion Technologies

(with Niels Johannesen, University of Copenhagen)

In standard models of tax enforcement with a single evasion technology, stricter enforcement unambiguously leads to less evasion and more revenue. We show that in the presence of multiple evasion technologies, stricter tax enforcement may lead to more tax evasion and it may be associated with a loss of government revenue and lower welfare. Intuitively, increasing the probability of detecting one of the evasion technologies, induces some firms to switch to the other evasion technology. If the latter technology is more expensive but allows for more evasion, then this behavioural effect may dominate other effects and evasion may increase while revenue drops.


The OECD Global Anti-Base Erosion ("GloBE") proposal

(with Michael P. Devereux, François Bares, Judith Freedman, İrem Güçeri, Martin McCarthy, Martin Simmler and John Vella)

Oxford University, Centre for Business taxation - January 2020 Policy report - PDF

© 2019 Sarah Clifford