How Are Domestic Workers Affected by Foreign Tax Changes?

• In Event: Wage Against the Machine

Abstract

We study the effect of foreign corporate tax cuts on domestic labor markets by linking the universe of Norwegian firm-level FDI data with personal tax returns. Exploiting reforms affecting Norwegian subsidiaries, which lowered foreign tax rates by 3.1 percentage points on average, we find that domestic median wages increase by 2.8%. This increase is driven by a composition effect whereby multinationals reduce the number of less-than-college educated domestic workers, increasing the share of college educated workers by 2.1 percentage points. The worker adjustments are consistent with substitution between less-than-college domestic and foreign labor rather than profit shifting or capital changes.

Authors

• David Agrawal, University of California, Irvine

• Maximilian Todtenhaupt, Norwegian School of Economics & Leibniz University Hannover