Mr. Zamid Aligishiev, Mr. Giovanni Melina, and Luis-Felipe Zanna
This note is a user’s manual for the DIGNAR-19 toolkit, an application aimed at facilitating the use of the DIGNAR-19 model by economists with no to little knowledge of Matlab and Dynare via a user-friendly Excel-based interface. he toolkit comprises three tools—the simulation tool, the graphing tool, and the realism tool—that translate the contents of an Excel input file into instructions for Matlab/Dynare programs. These programs are executed behind the scenes. Outputs are saved in a separate Excel file and can also be visualized in customizable charts.
This report overviews countries fiscal actions in response to COVID-19 and discusses how governments policies should adapt to get ahead of the pandemic and set the stage for a greener, fairer, and more durable recovery. Global vaccination should be scaled up as it can save lives and will eventually pay for itself with stronger employment and economic activity. Until the pandemic is brought under control globally, fiscal policies must remain flexible and supportive, while keeping debt at a manageable level over the long term. Governments also need to adopt comprehensive policies, embedded in medium-term frameworks, to tackle inequalities—especially in access to basic public services—that were exacerbated by the COVID-19 pandemic and may cause income gaps to persist. Investing in education, healthcare and early childhood development and strengthening social safety nets financed through improved tax capacity and higher progressivity, can strengthen lifetime opportunities, improve trust, and contribute to more social cohesion.
Ruud A. de Mooij, Mr. Alexander D Klemm, and Ms. Victoria J Perry
The book describes the difficulties of the current international corporate income tax system. It starts by describing its origins and how changes, such as the development of multinational enterprises and digitalization have created fundamental problems, not foreseen at its inception. These include tax competition—as governments try to attract tax bases through low tax rates or incentives, and profit shifting, as companies avoid tax by reporting profits in jurisdictions with lower tax rates. The book then discusses solutions, including both evolutionary changes to the current system and fundamental reform options. It covers both reform efforts already under way, for example under the Inclusive Framework at the OECD, and potential radical reform ideas developed by academics.
Mr. Shafik Hebous, Mr. Alexander D Klemm, and Yuou Wu
Profit shifting by multinational enterprises—through manipulation of transfer prices of related-party trade, intragroup lending, or the location of intangibles—affects international flows, raising the question of its impact on the current account and external balances. This paper approaches this question theoretically and empirically. In theory, profit shifting distorts the components of the current account and bilateral current account balances but leaves a country’s aggregate net balance unaffected. There is, however, a real effect on current account balances, because taxes are paid to different jurisdictions. Moreover—in practice—the measured current account could change, because not all transactions are equally easy to track. Our panel empirical results broadly confirm that the current account balance tends to be, on average, unaffected by profit shifting, but taking heterogeneity into account we find that both the real tax effect and mismeasurement strengthen income balances—and thus the current account—in investment hubs.
Ruud A. de Mooij, Ms. Li Liu, and Dinar Prihardini
Formula apportionment as a way to attribute taxable profits of multinationals across jurisdictions is receiving increased attention. This paper reviews existing literature and discusses experiences in selective federal states to evaluate the economic properties of formula apportionment relative to the current international tax regime that is based on separate accounting. It highlights major advantages, such as the elimination of profit shifting within multinational groups; and it discusses new distortions and the impact on tax competition. The analysis exploits different datasets to assess the direct revenue implications for individual countries under alternative formulas. The distributional effects across countries are found to be large, reflecting major discrepancies between where profits are currently attributed and where factors of production are located or sales take place. The largest losses appear in investment hubs (i.e. countries with a disproportionate ratio of foreign direct investment to GDP), while several large advanced countries are likely to gain. Developing countries gain most likely if employment receives a large weight in the formula; they also tend to benefit, on average, from a formula based on sales by destination.
This paper explores the nature, significance and policy implications of spillovers in international corporate taxation—the effects of one country’s rules and practices on others. It complements current initiatives focused on tax avoidance by multinationals, notably the G20-OECD project on Base Erosion and Profit shifting (BEPS). The paper draws on the IMF’s experience on international tax issues with its wide membership, including through technical assistance (TA), and on its previous analytical work, to analyze spillovers and how they might be addressed. In doing so, it goes beyond current initiatives to look at a wide set of possible responses.
A joint production by six international organizations, this manual explores the conceptual and theoretical issues that national statistical offices should consider in the daily compilation of export and import price indices. Intended for use by both developed and developing countries, it replaces guidance from the United Nations that is now more than a quarter-century old and thus badly outdated. The chapters cover many topics; they elaborate on the different practices currently in use, propose alternatives whenever possible, and discuss the advantages and disadvantages of each alternative. Given its comprehensive nature, the manual is expected to satisfy the needs of many users in addition to national statistical offices and international organizations, particularly businesses, policymakers, and researchers.
Deepening globalization and associated or parallel technological and institutional developments are creating conditions which may reduce the industrial countries’ ability to sustain high levels of taxation. The paper identifies and discusses eight trends which may generate revenue falls. It also discusses some measures that might neutralize or reduce the impact of these trends.
The internationalization of business activity has created significant pressures on national corporate tax systems. Rather than abandon the corporate tax field, this paper predicts that governments will develop arrangements to further globalize the corporate income tax. The paper assesses the merits and limitations of allocation methods for attributing income to different jurisdictions according to formulas measuring business activity. Such methods are being used as part of transfer pricing regimes and are likely to be enhanced over time. Whatever international arrangements develop in the future, there is a role for new institutions to improve cooperative discussions among governments.
This paper considers elements of macroeconomic policy central to Ireland’s objective of being among the first countries to enter into European Economic and Monetary Union. The paper analyzes the main determinants of the Irish pound/sterling exchange rate, an issue brought to the fore by the currency turbulence of March 1995, which saw a sterling-inspired decline in the Irish pound against the deutsche mark. It also considers fiscal developments and prospects, highlighting tax reform measures undertaken to accelerate job creation, the growth of spending in recent years, and the medium-term fiscal outlook.