This paper explores how corporate taxes can result in cross-country spillover effects along international supply chains. Rooted in the theory of tax incidence, suppliers (customers) try to pass their corporate tax burden onto foreign customers (suppliers) through higher (lower) prices. This reduces foreign firms’ profits and, thereby, can lead to lower investments at the level of the customer (supplier).
Using a rich data set on millions of supplier-customer links for over 18,000 publicly traded firms and exploiting corporate tax rate variation in 54 countries over the period 2010-2022 in a shift-share design, we find evidence supporting this notion. Corporate taxes of suppliers or customers reduce investments of connected foreign firms along the supply chain. This investment-spillover effect is stronger when firms have less market power or when they operate in more competitive markets.
Moreover, we show that higher suppliers’ and customers’ taxes reduce connected firms’ profitability and margins. We also show that foreign firms respond to the higher suppliers’ or customers’ taxes by adjusting the global supplier-customer network. Overall, our results show that corporate taxes can result in adverse cross-border spillover effects when firms are connected via the supply chain.
Gaizka Ormazabal is an associate dean for Research and PhD program since 2023 and Professor in the Accounting and Control Department. Professor Ormazabal received a Ph.D. in Business from Stanford University, a Ph.D. in Construction Engineering from Universitat Politecnica de Catalunya and a Bachelor’s Degree in Civil Engineering (Ingeniería de Caminos, Canals y Puertos) from Universitat Politécnica de Catalunya. Gaizka's research focuses on executive compensation, corporate governance, and financial regulation, with particular attention to the valuation and impact of governance mechanisms.
Professor Ormazabal’s research focuses on executive compensation and corporate governance. His work examines the choice and valuation implications of corporate governance mechanisms. His current research projects analyze recent trends in managerial compensation, corporate governance intermediaries, financial regulation, bank accounting, and the role of corporate governance in sustainable development.
His research appears in leading academic journals including, among others, Journal of Accounting and Economics, Journal of Accounting Research, Journal of Finance, Journal of Financial Economics, Journal of Law and Economics, Review of Accounting Studies and The Accounting Review. His research has been featured in the popular media, including such outlets as the Wall Street Journal, the New York Times, The Economist, Forbes, and Bloomberg and has been cited in final rulings by the U.S. Securities and Exchange Commission and the European Securities and Markets Authority.
He is editor of Review of Accounting Studies. Professor Ormazabal is also a Research Affiliate in the Financial Economics program of the Center for Economic Policy Research (CEPR), research member in the European Corporate Governance Institute (ECGI), and Research Member of the Sustainable Finance Research and Policy Network (RPN). He is the Grupo Santander Chair of Financial Institutions and Corporate Governance and serves as academic director at the IESE Center for Corporate Governance.
The seminar will be held in English.
Major information: Eleonora Monaco (e.monaco@unibo.it).