draining development.pdf - Khazar University

Tax Evasion and Tax Avoidance: The Role of International Profit Sharing 127corruption) countries and low-tax (low-corruption) countries. Thisrequires the inclusion of a set of control variables that capture differencesbetween affiliates and host countries. The most convincingapproach involves including a set of affiliate fixed effects into a paneldata regression, which implies that the researcher accounts for all timeconstantaffiliate differences, and the identification is achieved via corporateadjustments to changes in taxes or the corruption level. For thisidentification strategy to be applied, stringent data requirements have tobe met. Ideally, accounting data on pretax profits, tax payments, debtlevels, or intrafirm transfer prices should be available in panel format forseveral years; the same should be true of information on corporate taxesand the level of corruption and political stability.Data setsA number of data sets may fulfill the requirements associated with thetwo identification strategies laid out above. In the following, we presenta selection of these databases. In a first step, we discuss one of the datasources, Orbis, in some depth. In a second step, we briefly describe alternatedatabases available for the purpose of testing tax avoidance in thedeveloping world. The tables referenced in this discussion are containedon the website of this volume. 2Orbis. The Orbis data provided by Bureau van Dijk contain informationon companies worldwide (see table 4A.1 on the website for a descriptionof the data). While the majority of firms in Orbis are located in industrializedeconomies, the data also include information on countries in thedeveloping world. Orbis is available in different versions, but the largestversion of the data set comprises 85 million firms (as of 2011), and newdata are added constantly. The data are collected from various (partlyprivate and partly official) sources that may differ across countries. Consequently,it is a well-known problem of the Orbis data that the firmcoverage differs across countries, and some economies are poorly representedin relative terms. This problem is especially pronounced in developingcountries. While the firm coverage tends to be particularly limitedin Africa, information on a sufficiently large number of firms is reportedfor several economies in Asia and Latin America. Hence, we think thatfocusing on those developing economies for which good information is