albertus_tepper_20160831Curriculum Vitae

Email: albertus@cmu.edu

Research Interests: multinational firms, empirical corporate finance, international finance

Does Foreign Tax Arbitrage Promote Innovation? Evidence from Subsidiary-Level Data
Abstract: In this paper, I examine innovation in the context of an unexpected policy shock that facilitated tax arbitrage by U.S. multinational firms. I find that after the shock, U.S. multinationals shifted more of their intellectual property to low tax countries. The firms’ taxable income moved in parallel, increasing the after-tax return to innovative activity. In response, U.S. multinationals increased their innovative activity in the U.S., whether measured using R&D expenditures, R&D employment, patent applications, or patent citations. The findings contrast with U.S. policy makers’ concerns that innovation-focused investment and employment are leaving the U.S. due to disparities between the U.S. and foreign tax codes.

U.S. Tax Arbitrage by Foreign Multinational Firms and its Real Effects
Abstract: Controlled foreign corporation (CFC) laws are designed to restrict the tax arbitrage activities of multinational firms. I estimate a difference-in-differences specification to study profit shifting out of the U.S. following the staggered implementation of CFC laws in 17 foreign countries since 1982. The evidence indicates that when a foreign country implements a CFC law the multinationals based there, and hence subject to the law, shift less of their U.S. profits out of the U.S. A dynamic specification suggests CFC laws have their full effect within two years of implementation. Within-firm interest payments (“interest stripping”) play a significant role in the aggregate profit shifting patterns. In addition, foreign multinationals appear less likely to establish U.S. subsidiaries, and more likely to dissolve those they have, when a CFC law induces them to realize more of their U.S. profits in the United States.