The Network Effects of Fiscal Adjustments

How Do Corporate Tax Hikes Affect Investment Allocation within Multinationals?

“…In this case, the negative marginal return effect on the upstream subsidiary is mitigated by the transfer price effect. Noticeably, these findings are consistent with the results of Briganti et al (2018) that tax hikes are primarily supply shocks that transmit downstream but not the other way around.…”

“…Consequently, the downstream subsidiary is effectively less exposed to the tax hike, muting the production linkage channel. It is worth mentioning that these findings echo the argument of Briganti et al (2018) that tax hikes are primarily supply shocks that transmit downstream.…”