The Missing Profits of Nations

Abstract By exploiting new macroeconomic data known as foreign affiliates statistics, we show that affiliates of foreign multinational firms are an order of magnitude more profitable than local firms in a number of low-tax countries. Leveraging this differential profitability, we estimate that 36$\%$ of multinational profits are shifted to tax havens globally. US multinationals shift twice as much profit as other multinationals relative to the size of their foreign earnings. We analyse how the location of corporate profits would change if shifted profits were reallocated to their source countries. Domestic profits would increase by about 20$\%$ in high-tax European Union countries, 10$\%$ in the US, and 5$\%$…