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Business and Economics > Corporate Taxation

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Cover Staff Discussion Notes
Broadening the Gains from Generative AI: The Role of Fiscal Policies
Fernanda Brollo
,
Era Dabla-Norris
,
Ruud de Mooij
,
Daniel Garcia-Macia
,
Tibor Hanappi
,
Li Liu
, and
Anh D. M. Nguyen
Generative artificial intelligence (gen AI) holds immense potential to boost productivity growth and advance public service delivery, but it also raises profound concerns about massive labor disruptions and rising inequality. This note discusses how fiscal policies can be employed to steer the technology and its deployment in ways that serve humanity best while cushioning the negative labor market and distributional effects to broaden the gains. Given the vast uncertainty about the nature, impact, and speed of developments in gen AI, governments should take an agile approach that prepares them for both business as usual and highly disruptive scenarios.
Keywords:
Artificial intelligence; AI; technological change; labor market; fiscal policy; social protection systems; tax systems; IMF Staff Discussion Note SDN2024/002; gen AI; advance public service delivery; role of fiscal policies; replacement ratio; job displacement; income support; tax treatment; market power; Labor markets; Corporate income tax; Automation; Capital income; Global
Cover IMF Staff Country Reports
Djibouti: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper focuses on empowering diverse futures. The economy of Djibouti grew at an unprecedented rate during the last decade, but the investment-led economic expansion did not translate into tangible labor market’s improvements. The capital-intensive nature of the country’s growth model limits job creation, while growing skill mismatches in the labor market have increased structural unemployment. While access to education has increased dramatically since the 2000s, more could be done in improving the quality of education and expanding vocational and adult learning. Moreover, stepping-up diversification would support the development of more labor-intensive sectors, further spreading the benefits from growth to all Djiboutians. The timely collection of labor market statistics remains a key constraint for supporting decision-making and job creation. The design and implementation of adequate policy frameworks to foster job creation requires complete and timely labor market data. The frequent collection of basic labor market data, such the unemployment rate, remains a priority for policy design and implementation.
Keywords:
revenue productivity; productivity of the VAT; SOE governance; telecom cost; sector investment lag; Corporate income tax; Labor markets; Personal income tax; Middle East; North Africa; Sub-Saharan Africa; Africa; Middle East and Central Asia
Cover IMF Working Papers
Searching for Wage Growth: Policy Responses to the “New Machine Age”
Andrew Berg
,
Edward F Buffie
,
Mariarosaria Comunale
,
Chris Papageorgiou
, and
Luis-Felipe Zanna
The current wave of technological revolution is changing the way policies work. This paper examines the growth and distributional implications of three policies when “robot'' capital (a broad definition of robots, Artificial Intelligence, computers, big data, digitalization, networks, sensors and servos) is introduced in a neoclassical growth model. 1) cuts to the corporate tax rate; 2) increases in education spending; and 3) increases in infrastructure investment. We find that incorporating “robot'' capital into the model does make a big difference to policy outcomes: the trickle-down effects of corporate tax cuts on unskilled wages are attenuated, and the advantages of investment in infrastructure, and especially in education, are bigger. Based on our calibrations grounded on new empirical estimates, infrastructure investment and corporate tax cuts dominate investment in education in a "traditional" economy. However, in an economy with “robots” the infrastructure investment dominates corporate tax cuts, while investment in education tends to produce the highest welfare gains of all. The specific results, of course, may depend on the exact modeling of the technological change, but our main results remain valid and can provide more accurate welfare rankings.
Keywords:
Technological change; Artificial Intelligence; robots; growth; income distribution; fiscal policy; public investment; education; corporate tax tax cut; way policy; infrastructure investment; IMF working paper No. 2024/3; ICT capital; Robotics; Skilled labor; Unskilled labor; Wages; Europe; Global
Cover IMF Working Papers
Labor Taxation in the Western Balkan: Looking Back and Forward
Mr. Alain Jousten
,
Mario Mansour
,
Irena Jankulov Suljagic
, and
Charles Vellutini
This paper examines how labor taxation (personal income taxes and social security contributions) in the Western Balkan contributes to labor market outcomes such as high informality and a significant gender gap in participation rates. We find that limited progressivity combined with high tax wedge on low incomes poses a major twin equity-efficiency challenge in the region, resulting in low redistributive capacity and inadequate incentives to enter the job market. Policy implications are discussed with a view to alleviating the excessively high tax wedges on low incomes, while improving progressivity of income taxation.
Keywords:
Western Balkan; labor taxation; labor tax wedge; personal income tax; corporate income tax; social security contributions; income taxation; SSC reduction; employer SSCs; Labor taxes; Tax wedge; Wages; Labor markets; Europe
Cover IMF Staff Country Reports
Sri Lanka: Selected Issues
International Monetary Fund. Asia and Pacific Dept
Selected Issues
Keywords:
A. government financing; General government tax revenue; indirect tax revenue composition; B. tax revenue performance; average revenue; Value-added tax; Consumption taxes; Informal employment; COVID-19; South Asia; Global; Asia and Pacific
Cover IMF Working Papers
Excess Profit Taxes: Historical Perspective and Contemporary Relevance
Mr. Shafik Hebous
,
Dinar Prihardini
, and
Nate Vernon
This paper discusses the design of excess profits taxes (EPTs) that gained renewed interest following the COVID-19 outbreak and the recent surge in energy prices. EPTs can be designed as an efficient tax only falling on economic rent, like an allowance for corporate capital, and drawing some parallels with current proposals for reforming multinationals’ taxation. EPTs can be permanent or temporary as an add-on to the corporate income tax to support revenue during an adverse shock episode. The latter reflects experiences with EPTs during and after the World Wars. Different from that era, though, profit shifting is now a challenge. Estimation using firm-level data suggest that, at present, locations of excess profit across countries are consistent with profit shifting practices by multinationals. Destination-based EPTs can address this concern. Estimates suggest that a 10 percent EPT on the globally consolidated accounts of multinationals (on top of the current corporate income tax), with the EPT base being allocated using sales, raises global revenue by 16 percent of corporate income tax revenues. The analysis suggests that international coordination would be desirable to mitigate the risks of profit shifting and tax competition. Eventually, EPTs could mark an evolution of corporate taxation toward a non-distortionary rent tax.
Keywords:
profit shifting; profits tax; com petition; profit tax; excess profits; Corporate income tax; Allowance for corporate equity; Non-wage benefits; Corporate taxes; Global
Cover IMF Working Papers
Home or Away? Profit Shifting with Territorial Taxation
Dominika Langenmayr
and
Ms. Li Liu
In 2009, the United Kingdom abolished the taxation of profits earned abroad and introduced a territorial tax system. Under the territorial system, firms have strong incentives to shift profits abroad. Using a difference-in-differences research design, we show that the profitability of UK subsidiaries in low-tax countries increased after the reform compared to subsidiaries of non-UK multinationals in the same countries by an average of 2 percentage points. This increase in profit shifting also leads to increases in measured productivity of the foreign affiliates of UK multinationals of between 5 and 9 percent.
Keywords:
profit shifting; territorial tax system; multinational firms; shifted profit; UK multinational; UK subsidiary; difference-in-differences research design; Total factor productivity; Transnational corporations; Corporate income tax; Income; Wages; Global
Cover IMF Staff Country Reports
Dominica: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
Selected Issues
Keywords:
moment Calibration summary; income distribution implication; building RESILIENCE; shadow economy estimate; B. General model description; fiscal policy experiment; Corporate income tax; Informal economy; Personal income tax; Consumption; Caribbean
Cover IMF Working Papers
An Assessment of Global Formula Apportionment
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.
Keywords:
WP; parent company; taxable income; company group; company transaction; enterprise tax.; non-loss-making company; International corporate taxation; Multinationals; Formula apportionment; enterprise tax; tax competition; data from ORBIS; tax enforcement; revenue effect; Corporate income tax; Personal income; Employment; Global; Europe
Cover IMF Working Papers
U.S. Investment Since the Tax Cuts and Jobs Act of 2017
Emanuel Kopp
,
Mr. Daniel Leigh
,
Susanna Mursula
, and
Suchanan Tambunlertchai
There is no consensus on how strongly the Tax Cuts and Jobs Act (TCJA) has stimulated U.S. private fixed investment. Some argue that the business tax provisions spurred investment by cutting the cost of capital. Others see the TCJA primarily as a windfall for shareholders. We find that U.S. business investment since 2017 has grown strongly compared to pre-TCJA forecasts and that the overriding factor driving it has been the strength of expected aggregate demand. Investment has, so far, fallen short of predictions based on the postwar relation with tax cuts. Model simulations and firm-level data suggest that much of this weaker response reflects a lower sensitivity of investment to tax policy changes in the current environment of greater corporate market power. Economic policy uncertainty in 2018 played a relatively small role in dampening investment growth.
Keywords:
WP; business investment; investment growth; capital expenditure; aggregate demand; employment behavior; firm level; Investment; fiscal policy; market power; uncertainty; investment response; growth impact; company markup; savings company; investment growth impact; response to the TCJA; Private investment; Corporate income tax; Capital spending; Employment; Global