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International Tax and Public Finance


Springer New York LLC

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This paper introduces heterogeneous profit shifting costs induced by corrupt tax officials to the analysis of profit shifting of multinationals. Using a theoretically derived corruption weighted tax differential, we show that corruption increases profit shifting of European firms. We use our estimates to calculate the implied tax revenue elasticities for European countries and find that countries with otherwise similar tax rates face lower tax revenue elasticities when they are more corrupt. This means that corruption negatively affects the revenue gains that countries could have from increasing their tax rates.


This is a post-peer-review, pre-copyedit version of an article published in International Tax and Public Finance. The final authenticated version is available online at:

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