Base erosion, profit-shifting and developing countries


International corporate tax issues are now prominent in public debate, most notably with the current G20-OECD project addressing Base Erosion and Profit Shifting (‘BEPS’). But while there is considerable empirical evidence for advanced countries on the cross-country fiscal externalities at the heart of these issues there is almost none for developing countries. This paper uses panel data for 173 countries over 33 years to explore the magnitude and nature of international fiscal externalities, with a particular focus on developing countries and applying a new method enabling a distinguishing between spillover effects through real investment decisions and through avoidance techniques—and quantification of the revenue impact of the latter. The results suggest that spillover effects on the tax base are substantially larger in developing countries than in advanced, and that they imply a likely loss of revenue from BEPS that is both substantially larger for them.