Barry Presents Tax And The Boundaries Of The Firm Today At Columbia

Jordan Barry (San Diego) presents Tax and the Boundaries of the Firm (with Victor Fleischer (San Diego)) at Columbia today as part of its Davis Polk & Wardwell Tax Policy Colloquium Series hosted by Alex Raskolnikov and Wojciech Kopczuk:

How does the income tax shape the boundaries of the firm? This Article goes back to foundational ground — Coase’s inquiry into the nature of the firm— to gain some traction on this elementary question. ...

Part II revisits the literature on Coase and the boundaries of the firm, setting the stage for a discussion of how transaction cost economics can inform tax policy. Part III explores some of the ways in which the income tax distorts the boundary of the firm. In doing so, it provides numerous examples of provisions that can grow or shrink firms at the margin or alter the relative size of their components. It also discusses how firms can respond to income tax law incentives without significantly changing their economic behavior by engaging in regulatory arbitrage.

Part IV emphasizes these points through a case study of U.S.- based multinational corporations, discussing both the real distortion of reinvesting profits abroad and the “nonreal” response of moving existing profits abroad for legal purposes. Part V discusses the implications of our analysis for a number of tax policy questions and Part VI concludes.