A – Potentially Positive – Welfare Assessment of the Global Minimum Tax

Lidia Brun (), Daniel Stoehlker (), Jonathan Pycroft and Maarten Van't Riet
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Lidia Brun: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en
Daniel Stoehlker: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en

No 2025-04, JRC Working Papers on Taxation & Structural Reforms from Joint Research Centre

Abstract: "We assess the welfare implications of the Global Minimum Tax (GMT) on corporate income in a multi-country macroeconomic model. The objectives of the GMT are to mitigate harmful tax competition and to curb wasteful profit shifting. The theoretical literature suggests that the welfare effects of the GMT are ambiguous. It contributes positively to welfare by improving tax revenues and limiting profit shifting; however, it may also raise firms' capital costs, exerting a contractionary effect on the economy. Using our applied model, we combine all these effects to produce numerical welfare results, creating what we believe is the first comprehensive and quantitative welfare assessment of the GMT. We simulate the implementation of a GMT of 15 percent by all countries in our model, which are the 27 EU Member States, the US, the UK, Japan, and a tax haven. We measure the welfare change in two scenarios. In the first, additional corporate income tax (CIT) revenues are redistributed as direct transfers to households. This produces mixed welfare results across countries, while the global welfare impact is slightly positive. In the second, additional CIT revenues are redistributed back to firms as lower CIT rates, provided that the rate remains at or above the GMT rate. In most countries, the reduction in the cost of capital from a lower CIT rate more than offsets the increase caused by reduced profit shifting, stimulating economic activity. Positive welfare outcomes are widely, though not universally, experienced, leading to a modest increase in global welfare. We investigate the impact of alternative GMT rates, finding that a 16 percent GMT rate yields the highest level of global welfare in our model."

Date: 2025-10
New Economics Papers: this item is included in nep-acc, nep-mac and nep-pbe
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