No abstract

We document a robust relation between corporate tax differentials and U.S. international financial integration (IFI). While this is the case for traditional IFI based on cross-border positions, the positive link also emerges for its larger consolidated-by-nationality version. The gap between these IFI measures, the key outcome variable in our analysis, exhibits a strong positive correlation with tax differentials too. This is in part due to consolidated assets of multinational enterprises being more strongly correlated with tax differentials than their cross-border counterpart. We interpret this as indirect evidence of U.S. multinationals taking advantage of tax differentials in ways that go beyond what is captured by traditional Balance of Payments procedures.

This paper presents novel estimates of foreign holdings from a consolidated-bynationality perspective for a sample of fourteen developed countries over multiple years. It describes the stylized facts that emerge from this new data-set on the international exposure of countries. It shows that aggregate international financial integration is larger from a nationality-based approach relative to the conventional residence-based data. These novel data are used to analyze (1) profit shifting activities and (2) spillovers from U.S. monetary policy shocks. I find evidence suggesting that nationals of relatively high-tax countries may shift assets to low-tax countries in ways not fully captured in residence-based statistics. I also find that a tightening in U.S. monetary policy is associated with a decline in consolidated-by-nationality foreign asset holdings by non-financial multinational enterprises. Such findings highlight the usefulness of this new data-set in international macroeconomics. JEL: F36, F21, F23.