Water Mill at Kollen

TAX RULE

On Thursday, a new multilateral treaty signed at OECD will allow early implementation of a global minimum tax rule for cross-border payments, as part of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The framework is meant to update global tax policy in response to how large multinational companies have adapted to globalization and digitalization.

In a September 2024 paper, Mona Barake and Elvin Le Pouhaër simulate the impact of the BEPS framework’s Pillar 1 proposal, which would repeal digital service taxes in certain countries and disallow the allocation of profits to countries that retain them:

“The total tax base to be redistributed annually is estimated to range from €30.8 to €57 billion if Pillar One had been implemented over the 2016 to 2022 period. The Marketing and Distribution Safe Harbor (MDSH) adjustment reduces substantially redistributed Amount A from its initial level of €75–150 billion. After accounting for double tax relief, this results in net revenues of €5.7 billion in 2020 to €10.9 billion in 2022. Revenues would be unequally distributed across the globe. We find that the largest beneficiaries will be the United States, with between €3.1 billion and €3.4 billion in 2022, and China, with net gains ranging from €1.8 billion to €2 billion that same year. In absolute terms, high-income countries would gain more than middle and low-income countries, which should be expected given the size of their market and the purchasing power of their consumers.”

 “The relevance of low-taxed profit in high tax jurisdictions implies that domestic minimum taxes could raise considerable revenue not only in jurisdictions with low average rates, but also in jurisdictions with average rates above the minimum tax.” By Felix Hugger, Ana Cinta González Cabral, and Pierce O’Reilly. Link. And see Thomas Tørsløv, Ludvig Wier, and Gabriel Zucman on the tax avoidance strategies of multinational companies. Link.

+  Ernesto Crivelli, Ruud A. de Mooij, and Michael Keen assess to what extent developing countries are affected by corporate tax base erosion, profit shifting, and tax competition. Link. “Corporate taxation increases the cost of capital and limits corporate investment. Hence, tax avoidance might also spur investment and produce some benefits for the economy as well, particularly in the case of financial constraints.” By María T. Álvarez-Martínez et al. Link.

+  Dhammika Dharmapala reviews the empirical literature on base erosion and profit shifting. Link. “Profit shifting could be reduced dramatically using policies like a minimum global corporate income tax, but these policies would also reduce global output substantially.” By John Budd, Jozef Konings, and Matthew J. Slaughter. Link.

NEW RESEARCHERS

Public services

MARIANNA SEBO recently obtained her PhD from the Economics Department at Barcelona University. In her dissertation, she examines local public service provisions and inter-municipal cooperation in the context of delivery costs and waste collection service quality.

From the paper:

“Public procurement is frequently used to contract solid waste collection services. Incomplete contracts and transaction costs increase the need for monitoring and supervision. In Barcelona, solid waste collection is regulated by competition, with four delivery zones being contracted out separately. Therefore, it is possible to make relative performance assessments, especially in the areas where the contracted firms operate close to each other. Private firms anticipate stronger competitive pressures near competitors’ zones, even after the contract has been awarded, and they compete on quality. Monthly data on the number of complaints regarding waste collection in the city’s 73 neighborhoods between 2014 and 2019 is used to evaluate quality. Using count model approaches, our results show that higher quality is provided in neighborhoods closer to other neighborhoods served by a competing firm. Moreover, lower quality is delivered in peripheral neighborhoods, where a comparison with competitors’ neighborhoods is much harder, if possible. The results are consistent with the hypothesis that firms strategically manage quality performance and tend to deliver higher quality where they anticipate that monitoring by the regulator is easier.”

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+  NYC Climate Week is already here: Join JFI and the Center for Active Stewardship for several upcoming events!

+  “What will happen in a region like the valley region of the Magdalena Medio, which has historically depended on the oil industry and is a hub for production, exploitation, refining, and transportation? A social transformation can’t be achieved overnight.” New on PW, Camilo Andrés Garzón interviews César Loza, President of la Unión Sindical Obrera, representing Colombia’s oil and gas workers. Link.

+  “The number of public firms increased sharply in the first half of the 1990s. However, the number of listed firms peaked in 1997 and has since fallen by half, such that there are fewer public corporations today than 40 years ago” By Sebastian Dyrda, Guangbin Hong, and Joseph B. Steinberg. Link.

+  “Case studies of the aeronautics and microelectronics industries provide evidence that the Pentagon has implemented a de facto industrial policy in the name of national defense.” By Gregory Hooks. Link. See Domhoff for a critique of Hooks and state autonomy theory, and a reply from Hooks. Linklink.

+  “The increase in the Selic rate distinctively reduces inflation in groups such as “Food and beverages,” “Household items,” and “Clothing,” but has an insignificant impact on subgroups such as “Housing” and “Communication.” ” By Rafael S. M. Ribeiro, Gilberto Tadeu Lima, Gustavo Pereira Serra, and Marina Sanches. Link.

+  “Microsoft’s nuclear deal is also the second major one inked by a technology company just this year. Amazon purchased a data center site co-located at another Pennsylvania nuclear plant in March.” By Matthew Zeitlin. Link.

+  Elizabeth Pancotti, Todd N. Tucker, and Matthew Yglesias share opposing views on the usefulness of tariff policies in shaping markets. Link.

+  “For the editors of Flame, structural location in capitalist production offered migrants from the Caribbean the possibility of imagining themselves as a global actor. The historical significance of the publication derived less from the originality of its form during a moment of global radicalism than its capacity to delineate the end of a decade when identities were in flux. Whilst Flame sought to platform the voices of black workers during the rise of fascist and racist violence in Britain, industrial restructuring in the advanced capitalist countries, and revolutionary expectations in the Caribbean, it also bookends a certain moment of political time. For its founder and co-editor, Anthony (Tony) Bogues—who would go on to be a Professor of Africana Studies at Brown University – Flame was historically significant because it aimed “to be a black radical, black workers newspaper at a specific moment when the political identity of being black British was being consolidated and formed.” ” By Casey Walsh. Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org

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