Leaders of the advanced economies that make up the Group of Seven in June announced what they described as an “historic commitment” on the taxation of multinational corporations. US President Joe Biden and his counterparts in Canada, France, Germany, Italy, Japan, and the UK publicly endorsed a global minimum corporate tax of at least 15 percent, billed as a step toward ending the “race to the bottom” that occurs when companies strategically relocate in order to pay the lowest rates.

But will the plan work? Chicago Booth’s Initiative on Global Markets asked members of its US and European Economic Experts Panels to express their views on some of the issues surrounding the global deal on corporate taxes, including whether it’s possible to achieve a stable international tax system with one minimum corporate rate. Seventy-five experts, split about evenly between the two panels, weighed in on three statements, reporting whether they agreed or disagreed, and, if so, how strongly and with what degree of confidence.

Statement A: A global minimum corporate tax rate would limit the benefits to companies of shifting profits to low-tax jurisdictions without biasing where they invest.

Responses weighted by each panelist’s confidence

Almost all of the panelists (94 percent) agree that a global minimum corporate tax rate would limit the benefits of profit-shifting to low-tax jurisdictions without biasing where firms invest. When responses are weighted by each expert’s confidence, more than three times as many members of the European panel say they strongly agree with the statement.

More nuances in the experts’ views come through in the short comments that they are able to include when they participate in the survey. “This is exactly the argument of the proponents—and I think it is correct as a first order effect.” says Jan Pieter Krahnen at Goethe University Frankfurt. As Stanford’s Nicholas Bloom explains, “Profit shifting is a curse for governments that want to properly tax capital. A global minimum tax is the best tool against this.” His Stanford colleague Kenneth Judd adds that “Tax competition causes wasteful tax avoidance activities. This minimum also makes it easier for countries to bring down their rates.”

A number of panelists mention conditions that would determine whether a global minimum achieves its objective. For starters, “a lot will depend on the details of the agreement. If there are significant loopholes, the agreement is unlikely to work,” says Imperial’s Franklin Allen. Patrick Honohan at Trinity College Dublin says the uniform tax rate could work “provided definitions of taxable income are also harmonized.” Warns MIT’s Daron Acemoglu: ‘But the benefits from such a tax depend on the rate. Multilateral bargaining may lead to an excessively low rate, missing a huge opportunity.’

Antoinette Schoar at MIT is among the experts who raise another issue: “The big IF here is whether it will be possible to achieve uniform enforcement.” University of California at Berkeley’s Alan Auerbach seconds that, saying “It really depends on how widespread and uniform the adoption is.” If countries manage to create a system that is truly global, or at least adopted and sustained by all the major economies and tax havens, perhaps it could work. But asks Chicago Booth’s Anil K Kashyap, “is that realistic?”

Of the panelists who say they are uncertain or disagree, several refer to the potential impact on invesment. Ricardo Reis at the London School of Economics points out that “All taxes (or almost all) bias investment decisions.” “But it will affect where they invest, reducing investment in currently-low-tax countries,” adds University of Chicago’s Robert Shimer at Chicago. “It will certainly bias where they invest,” exclaims Harvard’s Pol Antras, who continues, “but still seems like a splendid policy. We live in a second-best world!’

While Stanford’s Caroline Hoxby says she has “no opinion” on the statement, she comments, “Such a proposal is pleasant to consider but is unrealistic in practice. Pie in the sky.” And Stanford’s Pete Klenow alerts us to a study of the unintended consequences of eliminating tax havens.

Statement B: A stable international tax system in which the major advanced economies set a minimum rate on corporate income is achievable.

Responses weighted by each panelist’s confidence

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.”

Statement C: A global corporate tax system that is based on the location of final consumers would be more efficient than one based on the location of corporate headquarters and production facilities.

Responses weighted by each panelist’s confidence

The third statement, diving more into the weeds, asks whether taxes based on where firms make their sales would be more efficient than taxes based on where their headquarters and production are located. While over half of panelists agree with the statement, more than a third, including nearly half of the European panel, express uncertainty.

“Not as easy to manipulate,” says Hall, who agrees with the statement. “Consumption taxes make sense.” As Judd says, ‘Taxes should not distort intermediate goods and production decisions, such as headquarters locations.”

But those who are less certain list their reasons. The idea of taxation on the basis of sales is “Very complicated and untested,” says Yale’s William Nordhaus. “This is a complex issue that will vary by industry, country, and company, so this is hard to answer,” adds Bloom. And Leuz comments that there are “many open questions” whose answers depend “on details that are not spelled out in the question; such a system involves complex transfers across countries.”

And could this tax rate be implemented? Allen states, “It depends how such a system is structured and which country receives the revenues.” “Forcing small companies to pay taxes in any small country where people buy their products would be inefficient and anti-competitive,” notes Shimer.

“The location of consumers is an inferior system to the location of the owners of the capital,” says Hoxby, among the experts pointing to tax theory. “Effectively this would be a switch to a sales tax rather than a corporate income tax,” says Whelan. “I’m not sure this is necessarily more efficient.” And Antras comments that the idea “lacks theoretical foundation” and that a “production-based approach is better in a first-best world.” However, he acknowledges, “it may improve upon current, flawed system.”

All comments made by the experts are in the full survey results.

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