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The Global Minimum Tax Raises More Revenues than You Think, or Much Less

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  • Eckhard Janeba
  • Guttorm Schjelderup
Abstract
The OECD’s proposal for a global minimum tax (GMT) of 15% aims for a reversal of a decades-long race to the bottom of corporate tax rates driven by competition over real investments and profit shifting to low-tax jurisdictions. We study the revenue effects of the GMT by focusing on the induced strategic tax setting effects. The direct effect of the GMT is a reduction in profit shifting, which has a positive effect on revenues in high-tax countries as their tax base grows, and makes higher taxes attractive. A secondary effect, however, is that the value of attracting real foreign investments increases, which intensifies tax competition. We argue that the revenue effects of the GMT depend on the instruments governments use to attract firms. With endogenous corporate tax rates, revenues in non-havens increase if initially tax competition among non-havens is fierce. By contrast, when governments compete via lump sum subsidies, the revenue gains from less profit shifting are exactly offset by higher subsidies.

Suggested Citation

  • Eckhard Janeba & Guttorm Schjelderup, 2022. "The Global Minimum Tax Raises More Revenues than You Think, or Much Less," CESifo Working Paper Series 9623, CESifo.
    • Handle: RePEc:ces:ceswps:_9623
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    Cited by:

    1. David R. Agrawal, 2024. "Limits to Competition: Strategies for Promoting Jurisdictional Cooperation," NBER Chapters, in: Policy Responses to Tax Competition, National Bureau of Economic Research, Inc.
    2. Chen, Xuyang, 2024. "The Global Minimum Tax, Investment Incentives and Asymmetric Tax Competition," MPRA Paper 121893, University Library of Munich, Germany.
    3. Andreas Haufler & Hayato Kato & Hayato Kato, 2024. "A Global Minimum Tax for Large Firms Only: Implications for Tax Competition," CESifo Working Paper Series 11087, CESifo.
    4. Xuyang Chen, 2024. "The Global Minimum Tax, Investment Incentives and Asymmetric Tax Competition," Papers 2409.05397, arXiv.org.
    5. Amendolagine, Vito & Bruno, Randolph Luca & Cipollina, Maria & De Pascale, Gianluigi, 2023. "Minimum Global Tax: Winners and Losers in the Race for Mergers and Acquisitions," IZA Discussion Papers 16144, Institute of Labor Economics (IZA).
    6. Hikaru Ogawa & Ryota Tsuchiya, 2024. "Taxing Cross-Border Online Sales for Pareto Improvement in Tax Revenue," CIRJE F-Series CIRJE-F-1235, CIRJE, Faculty of Economics, University of Tokyo.
    7. Antonella Nocco & Gianmarco I. P. Ottaviano & Matteo Salto & Atsushi Tadokoro, 2024. "Leaving the global playing field through optimal non-discriminatory corporate taxes and subsidies," CEP Discussion Papers dp1992, Centre for Economic Performance, LSE.
    8. Nocco, Antonella & Ottaviano, Gianmarco & Salto, Matteo & Tadokoro, Atsushi, 2024. "Levelling the Global Playing Field Through Optimal Non-Discriminatory Corporate Taxes and Subsidies," CEPR Discussion Papers 18953, C.E.P.R. Discussion Papers.
    9. Guttorm Schjelderup & Frank Stähler, 2024. "The economics of the global minimum tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(4), pages 935-952, August.
    10. Nabavi Pardis & Nordström Martin, 2023. "The Impact Assessment of Implementing a Global Minimum Tax for MNEs in Sweden," Nordic Tax Journal, Sciendo, vol. 2023(1), pages 111-123, December.
    11. David R. Agrawal & James M. Poterba & Owen M. Zidar, 2024. "Introduction to "Policy Responses to Tax Competition"," NBER Chapters, in: Policy Responses to Tax Competition, National Bureau of Economic Research, Inc.
    12. Becker, Johannes & Wilson, John D., 2023. "Tax competition with two tax instruments — and tax base erosion," Journal of Public Economics, Elsevier, vol. 225(C).
    13. Nálepová, Veronika & Lampart, Marek, 2024. "Impact of windfall tax on market dynamics: A Cournot oligopoly model with exogenous shocks," Economic Modelling, Elsevier, vol. 137(C).
    14. Hebous, Shafik & Keen, Michael, 2023. "Pareto-improving minimum corporate taxation," Journal of Public Economics, Elsevier, vol. 225(C).
    15. Gschossmann, Emilia & Heckemeyer, Jost H. & Müller, Jessica & Spengel, Christoph & Spix, Julia & Wickel, Sophia, 2024. "The EU's new era of "Fair Company Taxation": The impact of DEBRA and Pillar Two on the EU Member States' effective tax rates," ZEW Discussion Papers 24-014, ZEW - Leibniz Centre for European Economic Research.
    16. David R. Agrawal & James M. Poterba & Owen M. Zidar, 2024. "Policy Responses to Tax Competition: An Introduction," NBER Working Papers 32090, National Bureau of Economic Research, Inc.
    17. Katarzyna Bilicka & Michael Devereux & İrem Güçeri & Katarzyna Anna Bilicka & Michael P. Devereux & Irem Guceri, 2024. "Tax Policy, Investment and Profit Shifting," CESifo Working Paper Series 11458, CESifo.

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    More about this item

    Keywords

    global minimum tax; tax competition; OECD BEPS; Pillar II;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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