Labor Market Protection and Tax-Motivated Income Shifting by Multinational Corporations

In this proposed research, I examine the broad question of whether and how multinational firms align their global tax-planning strategies with ESG (environmental, society, and governance) considerations. Specifically, I focus on societal aspects of the broader ESG framework and investigate whether multinationals factor country-level labor market protection into their cross-border tax-planning decisions. The foreign labor force is an important factor in the operation of multinational firms. Workforce-related considerations, including the skills, education, and wage levels of the workforce in a foreign country, are key determinants of foreign direct investment (e.g., Nunn and Trefler 2013; Yeaple 2003; Zhang and Markusen 1999). Extant research examines the impact of multinational firms on foreign labor markets, with a primary focus on the effects on wages of foreign workers (Aitken, Harrison, and Lipsey 1996; Almeida 2007)
and, to a lesser extent, on societal issues such as human rights abuses and work conditions (Ellinikos 2001; Spar 1998). With the increasing attention to corporate social responsibility in recent years, stakeholders and investors are watching more closely on how multinationals treat foreign workers in countries whose labor rights and protection are relatively weak (Aisbett, Harrison, Levine, Scorse, and Silver 2019). In this proposed research, I intend to examine whether multinationals embed their strategy toward social issues by examining the effect of country-level labor market protection on firms’ crossborder tax-planning decisions. I believe the study will contribute to the understanding of the determinants of multinational companies’ tax-motivated income-shifting activities. It will also provide evidence on how multinationals align their tax-planning strategies with non-tax considerations.