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

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, which dampens economic activity. Using our applied model, we combine all these effects to produce numerical results, creating what we believe is the first comprehensive 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 estimate 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. Positive welfare outcomes are widely, though not universally, experienced, leading to a modest increase in global welfare. We find these results are robust to non-participation of the US. Finally, 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.