Effects of Global Corporate Tax Reform on the US Economy

Abstract

In October 2021, 136 countries representing 90 percent of the world’s GDP signed onto a policy designed by the OECD and G20 governments to reduce profit shifting by multinational enterprises (MNE). At the same time, the United States—the country that hosts the largest share of MNEs in the world—has made almost no progress toward the implementation of the OECD proposal. How would corporate income tax reform by other countries affect the U.S. economy? Would it be better or worse for the United States to implement such reform after other countries do so? What would be the optimal U.S. response to tax reform in other countries? To address these questions, we extend the framework developed by Dyrda et al. (2022) to account for the details and specificity of the U.S. tax code regarding MNEs. We calibrate the model’s parameters to match salient facts about production, trade, FDI, and profit shifting under the current international tax regime. The preliminary results suggest that a global minimum tax in the United States would have far-reaching macroeconomic consequences even if other countries do not introduce such a policy. These consequences would be much more severe if other countries do in fact introduce such a policy.