Taxation

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. 

Simeon Djankov, Eva (Yiwen) Zhang, 02 July 2021

The advent of online technology in public services has made one ingredient of effective state building – easy taxes – possible to achieve in developing economies. This column describes how, fuelled by new technology, the time that it takes businesses to comply with tax requirements has fallen on average by 91 hours a year and the average number of payments was cut by 11 in the past 15 years. Accommodating policies for expanding the tax base are also needed, so everyone sees the upside from online tax services.

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. 

Agustin Redonda, Christian von Haldenwang, 16 June 2021

Tax expenditures – such as tax incentives for firms, tax deductions for households, and lower tax rates for specific goods and services – are both widespread and costly, but are generally not subject to the same level of scrutiny in the budget process as direct spending. This column introduces the Global Tax Expenditures Database, which aims to improve reporting and enhance scrutiny. As governments worldwide face growing funding needs to respond to the pandemic, they cannot afford to lose revenues to ill-designed tax breaks. Comprehensively assessing tax expenditures is crucial, and estimating and reporting their fiscal cost is a vital first step.

Sebastian Siegloch, Nils Wehrhöfer, Tobias Etzel, 04 June 2021

Increasing regional inequality has become a major concern for policymakers both in the US and Europe. This column investigates the effects of a large place-based investment subsidy targeted at manufacturing firms in East Germany. It shows that a decrease in the subsidy rate leads to a decrease in manufacturing employment, highlighting spillovers to untreated sectors in treated counties and untreated counties connected via trade and local taxes. It also finds that the place-based policy is at least as efficient as cash transfers for the unemployed but is more effective in curbing regional inequality overall.

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