02162cas a2200265 a 4500 AALejournalIMF021522 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513569994 1018-5941 BD-DhAAL BD-DhAAL Hebous, Shafik. How Does Profit Shifting Affect the Balance of Payments? / Shafik Hebous, Alexander Klemm, Yuou Wu. Washington, D.C. : International Monetary Fund, 2021. 1 online resource (28 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Profit shifting by multinational enterprises-through manipulation of transfer prices of related-party trade, intragroup lending, or the location of intangibles-affects international flows, raising the question of its impact on the current account and external balances. This paper approaches this question theoretically and empirically. In theory, profit shifting distorts the components of the current account and bilateral current account balances but leaves a country's aggregate net balance unaffected. There is, however, a real effect on current account balances, because taxes are paid to different jurisdictions. Moreover-in practice-the measured current account could change, because not all transactions are equally easy to track. Our panel empirical results broadly confirm that the current account balance tends to be, on average, unaffected by profit shifting, but taking heterogeneity into account we find that both the real tax effect and mismeasurement strengthen income balances-and thus the current account-in investment hubs. Mode of access: Internet Klemm, Alexander. Wu, Yuou. IMF Working Papers; Working Paper ; No. 2021/041 Full text available on IMF http://elibrary.imf.org/view/journals/001/2021/041/001.2021.issue-041-en.xml IMF e-Library