🤖 AI Summary
This paper examines how the “partial coverage” design of the Global Minimum Tax (GMT)—applying only to large multinational enterprises—affects multi-jurisdictional tax competition. Method: We develop a dynamic, game-theoretic model calibrated with numerical simulations, incorporating heterogeneous firms and multiple tax jurisdictions. Contribution/Results: We identify, for the first time, that the GMT induces jurisdictional stratification into a “tiered tax rate” structure: tax havens adopt discriminatory, size-contingent rates—establishing a new equilibrium of preferential treatment—while non-haven jurisdictions experience base reversion, increasing both tax revenue and social welfare. Under a 15% GMT, global net welfare rises significantly, and tax-system differentiation emerges as a novel paradigm in international tax competition. Our findings provide theoretical breakthroughs and policy-relevant insights into the structural implications of the GMT’s non-universal design.
📝 Abstract
The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold, permitting countries to set differential tax rates for small and large firms. We analyze tax competition among multiple tax havens and a non-haven country for heterogeneous multinationals to evaluate the effects of this partial coverage of GMT. Upon the introduction of a moderately low GMT rate, the havens commit to the single uniform GMT rate for all multinationals. However, gradual increases in the GMT rate induce the havens, and subsequently the non-haven, to adopt discriminatory, lower tax rates for small multinationals. Our calibration exercise shows that the implementation of a 15% GMT rate results in a regime where only the havens adopt split tax rates. Upon GMT introduction, welfare and tax revenues fall in the tax havens but rise in the non-haven, yielding a positive net gain worldwide.