The Enforcement Dilemma of the Global Minimum Tax
(2025) International Tax and Public Finance — (2025)
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- Abstract
- To address profit shifting, the OECD/G20 Inclusive Framework has proposed a Global Minimum Tax (GMT). The prevailing view is that high-tax countries stand to benefit, while low-tax countries may lose, as the minimum tax curtails inward profit shifting. However, recent studies (Johannesen 2022; Hebous and Keen 2023) suggest that the GMT can improve welfare for all countries—even when accounting for the interests of firm owners. This paper extends that line of analysis by incorporating endogenous enforcement choices. Using a formal model of international tax competition among heterogeneous countries, we explicitly examine how the GMT reshapes the dynamics of tax competition, profit allocation, and enforcement incentives. Our results reveal the existence of a critical threshold for the minimum tax: beyond this point, the low-tax country may withdraw from international enforcement cooperation, ultimately leaving the high-tax country worse off. We further demonstrate that these findings remain robust even in the presence of a non-cooperative tax haven with no tax and no enforcement.
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Hindriks, J., & Nishimura, Y. (2025). The Enforcement Dilemma of the Global Minimum Tax. International Tax and Public Finance. Accepted/in-press. (Original work published 2025)