Tax Spillovers from US Corporate Income Tax Reform

IMF Working Papers, July 13, 2018

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Tax Spillovers from US Corporate Income Tax Reform

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Bibliographic details

• Authors: Sebastian Beer, Alexander D Klemm, Thornton Matheson
• Published: July 13, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484367544.001

Overview

• The paper describes, and where possible tentatively quantifies, likely tax spillovers from the U.S. corporate income tax reform that was part of the broader 2017 tax reform.
• It calculates effective tax rates under various assumptions, showing how specific provisions can raise or reduce rates.
• The paper also discusses profit-shifting, real location, and policy reactions from the more complex features of the reform.

Key quantitative findings

• Under constant policies elsewhere, the rate cut will reduce tax revenue from multinationals in other countries by on average 1.6 to 5.2 percent.
• If other countries react in line with historical reaction functions, the revenue loss from multinationals rises to an average of 4.5 to 13.5 percent.

Mechanisms and provisions analyzed

• Effective tax rates are calculated under various assumptions to assess impacts of reform provisions.
• Analysis highlights the roles of:
  • the interest limitation provision (which can raise or reduce effective tax rates), and
  • the Foreign Derived Intangible Income (FDII) provision (which can raise or reduce effective tax rates).
• The paper examines channels including profit-shifting and real location effects.

Policy implications and scenarios

• Scenario A (constant policies elsewhere):
  • Multinational revenue loss: on average 1.6 to 5.2 percent.
• Scenario B (other countries react per historical reaction functions):
  • Multinational revenue loss: on average 4.5 to 13.5 percent.
• The analysis implies significant cross-border fiscal spillovers that depend on foreign policy responses and firm behavior related to profit-shifting and real investment location.

Additional notes on content and scope

• The paper is part of IMF Working Papers and aims to elicit comments and encourage debate; views expressed are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
• Keywords and subjects include: Average effective tax rate, Corporate income tax, Effective tax rate, Marginal effective tax rate, Revenue administration, Tax policy, Taxes, Profit Shifting, Tax Competition, Tax Reform, tax revenue.

Sebastian Beer, Alexander D Klemm, and Thornton Matheson. "Tax Spillovers from US Corporate Income Tax Reform", July 13, 2018.

Content in this bundle

• Tax Spillovers from U.S. Corporate Income Tax Reform, WP/18/166, July 2018
  • Tax Spillovers from U.S. Corporate Income Tax Reform, WP/18/166, July 2018 (Markdown version)
  • Tax Spillovers from U.S. Corporate Income Tax Reform, WP/18/166, July 2018 (PDF)