Generally, we think of a higher domestic tax rate discouraging domestic investment (subject to some caveats). One of the mechanisms through which investment is discouraged is companies simply move the investment they would have done in the country that is going to increase its tax rate, and, move it abroad. So what happens if a bunch of countries get together and form a corporate tax cartel, agreeing on a minimum tax rate? Will a global minimum tax rate reduce profit shifting without affecting investment?
That was the question posed to a bunch of economists. The Initiative on Global Markets (IGM) has panels of economic experts they ask questions to, and, a couple months back, they asked exactly this. So, what did the economists think? Everyone was pretty optimistic about it. But, the level of optimism depended on where the economists were from. The IGM has a panel of US experts, and, a panel of experts on the EU. 13% of US experts strongly agreed that a global minimum tax would reduce profit shifting without changing investment, whereas 44% of European experts thought that was the case. But, it is not as if the US folks think the scheme won’t work—they were just more likely to merely “agree”, than “strongly agree”. See the graph to the right. So, this is pretty compelling evidence that, at least among academic economists (some of whom study taxes specifically, most of whom do not), they think a global minimum tax will reduce profit shifting, without affecting investment.
This survey was done in July, and, a lot has happened since then. Just last week, all the countries needed to sign on in theory have done so, and, world leaders are hammering out the details of how it will work. The details will matter—a lot. It will be interesting to see how it unfolds, especially over the long run. For example, what happens when, a cartel firmly in place, in a few years, some country wants to deviate from the agreement? Cartels, in many cases, are fragile. But, even if the cartel breaks in the future, it may well be worth it to see what happens in the meantime. Will this open the door for more instances in which countries are willing to cede sovereignty to combat problems they perceive require multilateral effort? I, for one, am watching with interest.
