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The G7 Tax Clampdown and the End of Hyper-Globalization

Summary:
The G7 agreement on taxation of global corporations still needs formal approval from a wider set of countries, and there remain many details to be worked out for it to be effective. Nonetheless, it would not be farfetched to describe the deal as historic. CAMBRIDGE – On June 5, the world’s leading economies announced an agreement that will bolster their ability to raise taxes on global corporations. The agreement still needs formal approval from a wider set of countries, and there remain many details to be worked out for it to be effective. Nonetheless, it would not be farfetched to describe the deal as historic. Making America Global Again Al Drago/Pool/Getty Images

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The G7 agreement on taxation of global corporations still needs formal approval from a wider set of countries, and there remain many details to be worked out for it to be effective. Nonetheless, it would not be farfetched to describe the deal as historic.

CAMBRIDGE – On June 5, the world’s leading economies announced an agreement that will bolster their ability to raise taxes on global corporations. The agreement still needs formal approval from a wider set of countries, and there remain many details to be worked out for it to be effective. Nonetheless, it would not be farfetched to describe the deal as historic.

The G7 agreement has two planks. First, it proposes a global minimum tax of 15% on the largest corporations. Second, a portion of these corporations’ global profits will be clawed back to countries where they do business, regardless of the location of their physical headquarters.

These objectives are as clear an indication as any that hyper-globalization’s rules – under which countries must compete to offer global corporations ever-sweeter deals – are being re-written. Until very recently, it was opposition by the United States that stalled global tax harmonization. Now, by contrast, it was President Joe Biden’s administration that pushed the deal.

Since the race to the bottom in corporate taxation began in the 1980s, the average statutory rate has come down from

Dani Rodrik
I am an economist, and a professor at the Harvard Kennedy School. My most recent book is Economics Rules: The Rights and Wrongs of the Dismal Science (Norton, 2015). I was born and grew up in Istanbul, Turkey. I still follow Turkish politics very closely, as you will find out if you spend any time with this blog.

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