[ghgdynb1]

Whether or not we see such a harmonized tax rate emerge and even if we could find a way to have some governing body “enforce” it, you’d still see countries lowering their effective tax rates to lure firms or bolster growth. I bet there’s a maximum sustainable effective corporate tax rate, but I have no idea what it is (and for all I know it could be zero or negative).

[scsilver]

Can these small countries who offer the low rates stand up the US sanctions and tarrifs apparatus. The US has alot of strings to pull to make these tax havens cooperate. Thats a nice export industry you have there, would be a shame if something were to happen to it wink nudge.

[ghgdynb1]

The point is that effective tax rates can be really subtle.

For instance, you could have a country change what it considers to be “profit” so that you’re paying $2 on $100 of revenue, whereas in the neighboring country you’d be paying $6. Same nominal tax rate, different effective tax rates.

There are even more ways to play this: “Sure, we tax you at the required 20%, but you can then direct how those funds are used to reduce costs you’d otherwise have to pay directly.”

And this happens a ton— see the WTO and “effective” but not nominal tariffs.

[scsilver]

Thanks for the insight, what would be the danger of the happy path solution where these effective vs nominal rates arent factored in. Some countries have a huge advantage in certain industries?

[ghgdynb1]

Happy you found it helpful! The final section (imposters) of this [1] simplified exploration of “green beard altruism” might be of interest to you if you want to explore this further. If you’re interested in thinking about things like this generally, these are Nash equilibrium problems and the field is called game theory.

In answer: if we do discard the assumptions of game theory and we imagine nobody would ever think to “cheat,” it could work. But in reality it wouldn’t be just that some countries have huge advantages in some industries— they would have huge advantages in every industry. People and companies looking to maximize their opportunities would flee to the country with the lowest effective (nominal doesn’t matter) tax rate which could also guarantee their safety.

This is actually part of how the US ended up burying the Soviet Union/eastern Bloc with economic productivity— we kept poaching all their best engineers, scientists, mathematicians, and entrepreneurs.

[1] https://m.youtube.com/watch?v=goePYJ74Ydg

[Ericson2314]

It's certainly positive because all the other countries could tariff the spoiler or whatever. It doesn't have to be race to the bottom.