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Re-allocating taxing rights and minimum tax rates in international profit taxation

Author

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  • Kempkes, Gerhard
  • Stähler, Nikolai
Abstract
What are the macroeconomic implications of re-allocating taxing rights away from source countries (where goods are produced) to market countries (where goods are consumed) and introducing minimum rates in international profit taxation? We assess this question in a dynamic macroeconomic model that gives a meaningful role to profit taxation. We find that, in low tax economies, the average profit tax rate will rise. On the one hand, this reduces price competitiveness of firms located in these regions and, thereby, output. On the other hand, higher profit tax revenues help to reduce other taxes. Moreover, lower expected future output requires less capital in production in the long run. Firms hence invest less and (temporarily) augment dividend payments. This raises disposable income of households, who (at least temporarily) increase consumption. The opposite holds for high tax economies. When taxing rights are re-allocated, wealth transfers between regions mitigate these effects. In terms of welfare, low tax economies can benefit from an increase in profit taxation.

Suggested Citation

  • Kempkes, Gerhard & Stähler, Nikolai, 2021. "Re-allocating taxing rights and minimum tax rates in international profit taxation," Discussion Papers 03/2021, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:032021
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    More about this item

    Keywords

    Re-Allocating Profit Taxing Rights; Minimum Taxation; InternationalMacro;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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