draining development.pdf - Khazar University

134 Draining Development?a size control (the logarithm of total assets). Similar to the results in theprevious table, the coefficient estimate for the size variable is negativeand significant, suggesting that the tax payments per total assets decreasewith firm size. Moreover, conditional on firm size, the specificationsindicate that multinational firms in general, but especially those with atax haven connection report larger tax payments per total assets thannational firms. This result may arise because multinational firms tend toshow larger underlying productivity and, hence, earn greater profits pertotal assets, which lead to larger tax payments.Last, we assess the difference in the average effective tax rate ofnational and multinational firms (with a tax haven connection) as measuredby tax payments over the pretax profits of the firms (see table 4A.6on the website). To do this, we restrict our sample to firms that showboth a positive pretax profit and nonnegative tax payments. Specification(1) regresses the average tax burden on dummy variables indicatingmultinational firms (with tax haven connections) as determined bydirect ownership links. The regression results suggest that multinationalfirms, in general, are not subject to a lower average tax rate than theirnational counterparts, while multinational corporations with tax havenlinks report an average tax rate that is lower by 5 percentage points.Additionally, controlling for a full set of country fixed effects and industryfixed effects equally renders the coefficient estimate for the multinationaldummy negative and statistically significant, suggesting thatmultinational firms in general and multinational firms with a tax havenconnection pay lower taxes on their reported pretax profits comparedwith national firms. This result is, moreover, robust against the inclusionof a size control in the model, as presented in specification (4). Quantitatively,the results suggest that multinational firms pay 1 percentagepoint lower taxes on pretax profit than national corporations, whilemultinational firms with a tax haven connection pay 4.4 percentagepoints lower taxes on their profit. This means that the average effectivetax rate of multinational firms with a tax haven connection is around 3.4percentage points lower than the average effective tax rate of multinationalfirms without a tax haven connection. In specifications (5) to (8),we rerun the regression to account for indirect ownership links in thedefinition of the multinational dummy (with tax haven connections)and find comparable results.