There is considerably more uncertainty, especially among members of the US panel, surrounding the second statement, which is about whether an international tax system with a global minimum rate on corporate income is achievable, there is considerably more uncertainty.
Among those who say that it is, Chicago Booth’s Austan Goolsbee says, “The big economies are still hugely desirable and essential places to do business, not powerless small open economies in a race to the bottom.” Adds Klenow, “Because of diminishing returns, not all capital will flee to the lowest tax location,” pointing to his own research on relative prices and relative prosperity.
Others, including Honohan, remark on the potential need for actions beyond a global minimum rate. “But loopholes remain likely, thanks to effective corporate lobbying,” he says. “It may be achievable, but if there are countries outside of the agreement that can become tax havens, then it may not work very well,” comments Allen, and Acemoglu suggests that “Tax havens need to be regulated as well. There will be many more accounting tricks for tax evasion by MNEs. But feasible to close loopholes.” Barcelona’s Jordi Gali calls for heavy penalties for countries that don’t abide by the rules.
There are similar concerns among the panelists who say they are uncertain that the ultimate goal can be reached. Says Bloom, “The incentives to deviate are too large to make this easy, or even achievable. Look at the troubles coordinating across US states or the EU.” Krahnen adds: “The devil is in the details—as we can already see from the responses from Ireland, the Bahamas, and the UK.”
Stanford’s Robert Hall refers to research evidence on collective action, saying, “The literature on the instability of cartels suggest there is a problem.” Chicago Booth’s Steve Kaplan, who disagrees with the statement, adds that he suspects “it is very hard to get all relevant countries to agree/implement.” But Karl Whelan at University College Dublin responds that “International economic policy co-operation is possible once there is recognition of common interests,” pointing to Basel reforms in banking as evidence.
But then there are the politics to overcome. “This is less a question about economics than political will or skill. Cooperation is the obvious best outcome for governments in this area.,” says LSE’s Daniel Sturm. Booth’s Christian Leuz agrees. It’s “more a political than an economic question,” he says. The “answer largely depends on how much pressure major countries exert on tax havens.” The EU, he notes, is a case in point. And Richard Schmalensee at MIT notes simply, “I view this as an almost purely political question.”