Taxation

Vincent Aussilloux, Jean-Charles Bricongne, Samuel Delpeuch, Margarita Lopez Forero, 21 September 2021

French multinational enterprises have been expanding their activity abroad, including for profit-shifting purposes. These tax planning activities may alter the measurement and our understanding of their real activity. This column uses French micro-data from 1997 to 2015 to show that firm-measured productivity declines in the years following multinationals’ establishment of tax havens. Had these new presences in tax havens not been established, the annual growth of French aggregate labour productivity would have been 0.06% higher, which is tantamount to 9.7% of the observed annual aggregate labour productivity growth. 

Rabah Arezki, Alou Adesse Dama, Grégoire Rota-Graziosi, 17 August 2021

The empirical evidence on the relationship between trade orientation and growth in developing countries has been hotly contested for over half a century. This column focuses on the dynamic effects of trade liberalisation on tax revenue. Using a worldwide panel dataset, it shows a statistically negative effect of liberalisation on (non-resource) tax revenues in the short term and no significant effect in the medium term. Implementing a VAT prior to liberalisation mitigates its negative effects on tax revenues. 

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. 

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