Usama Jamal, a post-doc at Thema in public finance, has just won the prize of the RIEF conference for the best paper presented. In his paper, Tax Rules and Capital Reallocation: Real Effects of Anti-Tax Avoidance Policies, he studies the effects of Earnings Stripping Rules, a major anti-tax avoidance policy adopted by more than ninety countries over the last decade. These rules aim to limit profit shifting by multinational firms through debt channels, but they may also increase the cost of debt-financed capital.

Using a large panel dataset on global multinational operations and a staggered difference-in-differences design, Usama shows that these rules effectively reduce profit shifting and tax avoidance, but also decrease investment in affected subsidiaries. Multinational groups respond by reallocating capital and employment toward unconstrained affiliates, especially abroad. However, when the policy is adopted more broadly across a group’s global footprint, this reallocation shifts back toward domestic units, reducing the scope for international avoidance and increasing group-level tax liabilities.

The paper highlights the importance of international coordination in the design of anti-avoidance policies: such policies can be effective, but their real economic effects depend crucially on whether firms can shift activity toward unconstrained jurisdictions.