Pennies from Haven: Wages and Profit Shifting

Authors: Annette Alstadsæter, Julie Brun Bjørkheim, Ronald B. Davies, and Johannes Scheuerer

By shifting profits to a tax haven affiliate, multinationals have the ability to dramatically reduce their global tax bill. Indeed, Tørsløv, et al. (2018) find that the bulk of shifted profits are directed towards tax havens, especially those in the European Union.

What is less understood, however, is what happens to the money not spent on taxes. Put simply, if shifting profits leaves more money at the firm’s disposal, where does it show up?

We investigate one possibility: that at least some of it ends up in workers’ pockets via higher wages. To do so, we use matched employer-employee data from Norway to see if there is any evidence of a wage premium associated with working for a profit shifter.

Overall, we find that profit shifting is associated with a 2% wage premium for workers in high-skill occupations (managers, professionals, and technicians). This finding is especially strong in services where the prevalence of intangible assets may make shifting easier. CEOs in particular have higher wages in profit shifting firms and earn nearly 10% more.

Turning to an alternative way of comparing across workers, we use their wage level rather than their role in the firm. For services, the estimates show no significant wage premium until the 85 percentile, i.e. wages are higher for shifter employees, but only those already in the top 15% of the wage distribution.

These results suggest that profit shifting can contribute substantially to wage inequality – both across firms and within a given one.



What then do these higher wages mean for government revenues?

Using a back-of-the envelope calculation, we estimate that in 2018 profit shifting led to an extra 273 million NOK in income and social security tax revenues. That increase however, pales in comparison to estimates of the corporate tax losses due to profit shifting, which according to Tørsløv et al. (2018) amounts to 9.6 billion NOK annually (2015). Thus, the increase in personal tax revenues would only offset less than 3% of the lost corporate taxes meaning that our findings do not overturn the tax losses associated with profit shifting.

When combined with the potential effects on inequality, we do not see much room for a change in the public frustration with the tax planning by multinationals.


Tørsløv, T. R., Wier, L. S. & Zucman, G. (2018), The missing profits of nations, Working paper 24701, National Bureau of Economic Research.