Measurement and Allocation of Capital Inputs With Taxes: A Sensitivity Analysis for OECD Countries

Abstract

Taxes affect the measurement of capital inputs. The paper provides an assessment of these impacts in a cross-country framework where heterogeneity of corporate taxation across industries and asset types is accounted for. The results show that taxes change the relative prices of capital types, which, in turn, has implications on the estimated capital quality and reallocation effects in the traditional growth accounting framework. Omitting tax parameters is a source of mismeasurement, particularly when the rental price of capital assets is constructed using an external rate of return, leading to biased capital costs and profits rates. It is shown that differential taxation results in a deadweight loss in terms of misallocated capital inputs, predominantly due to composition effects within industries.JEL Codes: E01, E22, H25

The Global Minimum Tax and the taxation of MNE profit

“…Reducing MNE's low-taxed profit would support a more level playing field between MNEs and other firms and across governments. Several studies show that MNEs tend to face lower ETRs than firms operating in a single jurisdiction (Bilicka, 2019[27]; Egger, Strecker and Zoller-Rydzek, 2020 [28]). The ability of large MNEs to engage in profit shifting can exacerbate the uneven playing field between large multinationals and other firms.…”

“…R&D tax incentives have also been increasingly used over the past two decades (González Cabral et al, 2023 [26]; OECD, 2023 [70]). There is a large body of evidence that tax incentives can deliver very low ETRs (Botman, Klemm and Baqir, 2008 [71]; González Cabral, Appelt and Hanappi, 2021 [72]; Celani, Dressler and Hanappi, 2022 [73]; Egger, Strecker and Zoller-Rydzek, 2020 [28]).…”

“…GloBE Income is approximated using data for MNE subgroups with positive profit. 28 In order to approximate the tax base under the GloBE Rules, the paper follows the adjustments based on deferred tax accounting specified in the rules (Box 1 in Section 3). A particularly relevant adjustment performed in this paper refers to the treatment of losses under the GMT.…”

“…Data may be incomplete for certain jurisdictions. A list of corrected jurisdictions is contained in Annex C. 28 Data at the subgroup level approximates jurisdictional blending under the GloBE Rules. Only subgroups with positive profits are used in the estimation of the GMT as those subgroups are the ones for which the GloBE ETR would be calculated, and on whose profits top-up tax may be due.…”