Intra-Industry Diffusion of Profit Shifting Strategies

Does tax knowledge spread across firms? This paper provides systematic evidence along these lines using data on US-listed firms' presence in tax havens and an event study. An enterprise is more likely to own a subsidiary in a specific tax haven once another enterprise operating in the same sector enters this tax haven. The inclusion of three-way fixed effects, the absence of pre-trends, and several robustness checks consolidate the results. Moreover, profit shifting spillovers vary over time, across sectors, and by tax haven. The findings suggest that firms replicate the tax avoidance schemes of their peers and carry policy implications.