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The rates matter! Assessing the credibility of international corporate tax rate harmonization via cooperative game theory

Author

Listed:
  • Alexandre Chirat

    (Université Paris Ouest Nanterre - EconomiX)

  • Guillaume Sekli

    (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France)

Abstract

This article uses the main tools of cooperative game theory, the core of a game and the Shapley value, to tackle the challenge posed by corporate tax harmonization in order to fight profit shifting. More specifically, these tools are applied to provide a counterfactual evaluation and to assess the credibility of Saez and Zucman (2019) proposal to establish a minimum rate at 25% at the G7/G20 level. Based on the empirical data of Tørsløv et al. (2020), our main results are the following. First, at the G7 level, the more countries involved in the agreement, the more efficient it would be. Second, stability of cooperation at the G7 level can be achieved without giving up fairness consideration in the distribution of the surplus. We then extend our application to the G20 and show that these results do not hold anymore. Third, from this case, we conclude that not only the target rate matters in the perspective of international tax cooperation, but also the numbers of participants and their current effective rates.

Suggested Citation

  • Alexandre Chirat & Guillaume Sekli, 2021. "The rates matter! Assessing the credibility of international corporate tax rate harmonization via cooperative game theory," Working Papers 2021-04, CRESE.
  • Handle: RePEc:crb:wpaper:2021-04
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    References listed on IDEAS

    as
    1. Keen, Michael & Konrad, Kai A., . "The theory of international tax competition and coordination," Chapters in Economics,, University of Munich, Department of Economics.
    2. Thomas Tørsløv & Ludvig Wier & Gabriel Zucman, 2023. "The Missing Profits of Nations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(3), pages 1499-1534.
    3. Niels Johannesen & Gabriel Zucman, 2014. "The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 65-91, February.
    4. Dharmapala, Dhammika & Hines Jr., James R., 2009. "Which countries become tax havens?," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1058-1068, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International taxation; Tax cooperation; Profit shifting; Tax havens; Shapley value;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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