Sebastian Dyrda (Toronto, Dept. Econ.), Guangbin Hong (Michigan State, Dept. Econ.), Muhammad Ali Sajid (Toronto, Dept. Econ.) & Joseph B. Steinberg (Toronto, Dept. Econ.), Global Ripple Effects of Corporate Tax Reforms, NBER Working Paper No. 34627 (July 2026).
We study the cross-country effects of corporate tax reforms in a fragmented global tax regime. Using firm-level evidence on the 2017 U.S. Tax Cuts and Jobs Act (TCJA) and a quantitative general-equilibrium model, we illustrate how multinational enterprises (MNEs) propagate local policy shocks globally. Our framework emphasizes two properties of intangible capital: nonrivalry and mobile ownership. The TCJA generated positive outward ripple effects through two channels. First, it boosted U.S. MNEs’ intangible investment, raising output at their foreign subsidiaries. Second, it raised tangible investment by the U.S. subsidiaries of foreign MNEs, inducing their foreign parents to expand intangible investment at home. Conversely, a Global Minimum Tax (GMT) that allows low-tax jurisdictions to impose top-up taxes on U.S. MNEs’ affiliate earnings generates negative inward ripple effects on GDP and tax revenue for the United States. These findings illustrate that there is no such thing as a purely domestic corporate tax policy.
From the conclusion:
[O]ur analysis underscores two lessons for policy evaluation. First, corporate tax reforms should not be assessed in isolation: in a world with globally active MNEs and intangible capital that is nonrival and highly mobile across tax jurisdictions, unilateral policy changes can transmit sizable macroeconomic effects across borders. Second, the institutional specifics of tax reforms, such as QBAI-style deductions and the GMT’s SBIE carve-outs, play a material role in determining the magnitude of these spillovers; macroeconomic policy analysis needs to grapple with these specifics as well as the headline changes in statutory tax rates. Our model, and the effort of transcribing these specifics into it, together make a useful quantitative tool for evaluating a policy landscape that continues to change, including the OBBBA’s changes to the TCJA provisions and the adoption of the GMT across countries.
