Productivity Slowdown, Tax Havens and MNEs’ Intangibles : Where is Measured Value Creation?

Based on French firm-level data over around 15 years we evaluate the contribution of the micro-level profit shifting –through tax haven foreign direct investments to the aggregate productivity slowdown measured in France. We show that firm measured productivity in France declines over the immediate years following the establishment in a tax haven, with an average estimated drop by 3.5% in labor apparent productivity. We argue that this productivity decline, following a presence in a tax haven, is most likely explained by multinationals’ tax optimization, where domestic productivity is underestimated as profits are not recorded anymore in the home country. The fall in productivity is especially strong for firms that are intensive in intangible capital and is equivalent to 4.1% (versus 2.7% for low intangible intensive firms), reflecting the fact that these types of assets are more easily shifted across countries and facilitate tax planning. Our results additionally suggest that the mismeasurement has strong dynamic effects, as the decline becomes more important the longer the firm remains in a tax haven. Finally, given these firms’ weight in the economy, our results imply an 8% loss at the aggregate in terms of the level of the labor productivity throughout the whole sample period, which is equivalent to an annual loss of 9.7% in terms of the aggregate annual labor productivity growth