Global governance

Pamina Koenig, Sebastian Krautheim, Claudius Löhnert, Thierry Verdier, 30 July 2021

With economic globalisation facing a legitimacy crisis fuelled by various scandals associated with globalised value chains, advocacy NGOs and their campaigns are in the limelight. Still, little systematic knowledge has been generated on how global sourcing and exporting decisions of firms interact with the upsurge of this international social activism. This column uses a unique dataset on NGO campaigns against firms to show how the internationalisation and geographical structure of NGO campaigns are closely intertwined with patterns of global production and trade. 

Charles Goodhart, 30 July 2021

A predominant example of moral hazard is the application of limited liability to the shareholders of publicly listed private-sector corporations. This column argues that changing the incentives for senior employees and majority shareholders for listed firms may be the most effective form of regulation. The author suggests that creating a system where managerial staff and other shareholders are incentivised to adhere to best practice to protect themselves, as well as the firm in question, is optimal.

Romesh Vaitilingam, 06 July 2021

The G7 recently reached an agreement on the taxation of multinational corporations. The IGM Forum at Chicago Booth invited its panels of leading European and US economists to express their views on the challenges ahead. As this column reports, a strong majority (94% of the panelists) agrees that a global minimum corporate tax rate would limit the benefits of profit-shifting to low-tax jurisdictions without biasing where firms invest. But there is considerably more uncertainty among respondents about whether an international tax system with such a global minimum is achievable; and whether taxes based on where firms make their sales would be more efficient than taxes based on where their headquarters and production are located. 

Paolo Acciari, Barbara Bratta, Vera Santomartino, 28 June 2021

G7 finance ministers recently committed to a global minimum tax rate for multinational enterprises. A key objective is to reduce profit shifting by large enterprises. This column uses new microdata to show how the profit-shifting response to tax rate changes depends on tax rate differentials. Profit shifting is significantly more sensitive to tax rate changes in countries with tax rates lower than the world average, and less sensitive in countries close to the average. As a result, policies aimed at guaranteeing a minimum level of taxation may be effective and efficient in curbing profit shifting by reducing tax rate differentials. 

Francis Bloch, Gabrielle Demange, 17 December 2020

Tax avoidance by multinational firms presents a substantial challenge to policymakers and to international organisations. This column explores two possible policy regimes that could be introduced to target global firms focused on digital services: separate accounting and formula apportionment. The results of the study suggest that the separate accounting approach could be optimal, inducing lower efficiency costs and larger fiscal revenues. Such a policy regime would also make country-by-country reporting compulsory and reliable, which would induce additional outside benefits.

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