Publication: Effective Tax Rates, Firm Size and the Global Minimum Tax
Loading...
Date
2025-03-25
ISSN
Published
2025-03-25
Author(s)
Editor(s)
Abstract
This paper documents new facts on corporate taxation and the revenue potential of corporate minimum taxes, leveraging firm-level tax returns from 16 countries. First, effective tax rates follow a humped-shaped pattern with firm size: small firms benefit from reduced rates, while large firms take up tax incentives, leaving mid-sized firms with the highest effective rates. On average, the effective tax rate for the largest 1 percent of firms is 2.2 percentage points lower than the average effective tax rate for the top decile of firms. Second, although statutory tax rates are above 15 percent in all sample countries, over a quarter of top firms face an effective rate below 15 percent, challenging the simple tax haven versus non-haven dichotomy. Third, a simple 15 percent domestic minimum tax for the top 1 percent firms could raise corporate taxes by 14 percent on average across countries, absent behavioral responses. In contrast, the global minimum top-up tax would only raise a quarter of this revenue due to its generous deductions and smaller number of firms in scope.
Link to Data Set
Citation
“Bachas, Pierre; Brockmeyer, Anne; Dom, Roel; Semelet, Camille. 2025. Effective Tax Rates, Firm Size and the Global Minimum Tax. Policy Research Working Paper; 11090. © World Bank. http://hdl.handle.net/10986/42991 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication Geopolitics and the World Trading System(Washington, DC: World Bank, 2024-12-23)Until the beginning of this century, the GATT/WTO system worked. Economic research provided a compelling explanation. It showed that if governments maximize the well-being of their own countries broadly defined, GATT/WTO principles would facilitate mutually beneficial cooperation over their trade policy choices. Now heightened geopolitical rivalry seems to have undermined the WTO. A simple transposition of the previous rationalization suggests that geopolitics and trade cooperation are not compatible. The paper shows that this is only true if rivalry eclipses any consideration of own-country well-being. In all other circumstances, there are gains from trade cooperation even with geopolitics. Furthermore, the WTO’s relevance is in question only if it adheres too rigidly to its existing rules and norms. Through measured adaptation to the geopolitical imperative, the WTO can continue to thrive as a forum for multilateral trade cooperation in the age of geopolitics.Publication Innovative Financial Instruments and Their Role in the Development of Jurisdictional REDD+(Washington, DC: World Bank, 2025-05-08)Achieving global net zero carbon emissions requires stopping deforestation and making full use of tropical forests as carbon sinks. Market instruments for the sale and purchase of emission outcomes coming from Reducing Emissions from Deforestation and Forest Degradation framework programs could play a very significant role in achieving this goal. The development of these markets has been insufficient so far: their scale as of today is much lower than what would be required to generate meaningful resources for the countries that host tropical forests, and the quality of existing instruments is generally insufficient to allow a scaling up in demand. However, efforts to improve the transparency and integrity of these instruments are accelerating, particularly around jurisdictional Reducing Emissions from Deforestation and Forest Degradation framework programs. In parallel with these efforts, innovations in financial instruments suited for the framework’s carbon markets are also taking place, but their scale is limited so far. This paper looks beyond the current state of the framework’s carbon markets to consider a set of innovative financial instruments that would allow completing the infrastructure of emissions trading, enhancing its utility for both issuers and buyers of carbon credits in the framework’s jurisdictional programs. The paper shows how a combination of forest carbon bonds, where countries sell forward (or commit) their emission reduction outcomes, as well as call and put options can be used to de-risk and encourage early investment in jurisdictional Reducing Emissions from Deforestation and Forest Degradation framework programs. To quantify the value of these innovations, the paper evaluates the potential scale of these instruments for the case of Brazil. The estimates suggest that the amounts that could be mobilized would represent a critical contribution to effective forest conservation. The proposed instruments and methods can be used by other tropical nations that are prepared to implement a large-scale jurisdictional program. Although the paper acknowledges that the current state of carbon markets would still not allow their deployment in the short term, the conclusion is that these instruments have significant potential, and their future development could be an important contribution to the establishment of successful markets for the conservation of tropical forests.Publication Disentangling the Key Economic Channels through Which Infrastructure Affects Jobs(Washington, DC: World Bank, 2025-04-03)This paper takes stock of the literature on infrastructure and jobs published since the early 2000s, using a conceptual framework to identify the key channels through which different types of infrastructure impact jobs. Where relevant, it highlights the different approaches and findings in the cases of energy, digital, and transport infrastructure. Overall, the literature review provides strong evidence of infrastructure’s positive impact on employment, particularly for women. In the case of electricity, this impact arises from freeing time that would otherwise be spent on household tasks. Similarly, digital infrastructure, particularly mobile phone coverage, has demonstrated positive labor market effects, often driven by private sector investments rather than large public expenditures, which are typically required for other large-scale infrastructure projects. The evidence on structural transformation is also positive, with some notable exceptions, such as studies that find no significant impact on structural transformation in rural India in the cases of electricity and roads. Even with better market connections, remote areas may continue to lack economic opportunities, due to the absence of agglomeration economies and complementary inputs such as human capital. Accordingly, reducing transport costs alone may not be sufficient to drive economic transformation in rural areas. The spatial dimension of transformation is particularly relevant for transport, both internationally—by enhancing trade integration—and within countries, where economic development tends to drive firms and jobs toward urban centers, benefitting from economies scale and network effects. Turning to organizational transformation, evidence on skill bias in developing countries is more mixed than in developed countries and may vary considerably by context. Further research, especially on the possible reasons explaining the differences between developed and developing economies, is needed.Publication Economic Consequences of Trade and Global Value Chain Integration(World Bank, Washington, DC, 2025-04-04)This paper introduces a new approach to measuring Global Value Chains (GVC), crucial for informed policy-making. It features a tripartite classification (backward, forward, and two-sided) covering trade and production data. The findings indicate that traditional trade-based GVC metrics significantly underestimate global GVC activity, especially in sectors like services and upstream manufacturing, and overstate risks in early trade liberalization stages. Additionally, conventional backward-forward classifications over-estimate backward linkages. The paper further applies these measures empirically to assess how GVC participation mediates the impact of demand shocks on domestic output, highlighting both the exposure and stabilizing potential of GVC integration. These new measures are comprehensively available on the World Bank’s WITS Platform, providing a key resource for GVC analysis.Publication Labor Market Scarring in a Developing Economy(Washington, DC: World Bank, 2025-05-08)This paper estimates the magnitude of labor market scarring in a developing economy, a setting that has been understudied by the labor scarring literature dominated by advanced economies. The paper assesses the contributions of “stigma” versus “lost human capital,” which cause earnings losses among displaced workers relative to non-displaced workers. The findings indicate that job separations caused by plant closings result in sizable and long-lasting reductions in earnings, with an average decline of 7.5 percent in hourly wages over a nine-year period. The estimate for one year after a plant closing is larger, at a decline of 10.8 percent. In a common sample, after controlling for unobserved, time-invariant individual characteristics, the impact of a plant closing declines from 11.9 to 8.2 percent. These results imply that stigma in the labor market due to imperfect information about workers (captured by unobservable worker characteristics) accounts for 30.8 percent of the average earnings losses, whereas lost employer-specific human capital explains the remaining 69.2 percent. The paper explores the effects of job separations due to plant closings on other labor market outcomes, including hours worked and informality, and provides estimates across genders and levels of education.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Effective Tax Rates and Firm Size(World Bank, Washington, DC, 2023-02)This paper provides novel evidence on the relationship between firm size and effective corporate tax rates, using full-population administrative tax data from 13 countries. In all countries, small firms face lower effective corporate tax rates than mid-sized firms due to reduced statutory tax rates and a higher propensity to register losses. In most countries, effective corporate tax rates fall for the largest firms due to the take-up of tax incentives. As a result, a third of the top 1 percent of firms face effective corporate tax rates below the global minimum tax of 15 percent. The minimum tax could raise corporate tax revenue by 27 percent in the median sample country.Publication The Impact of COVID-19 on Formal Firms(World Bank, Washington, DC, 2020-10)How is the COVID-19 pandemic affecting firm profits and tax payments in developing countries? This paper uses administrative corporate tax records from 10 low- and middle-income countries around the world to provide plausible estimates. Modeling the lockdown-triggered revenue shock with simple and transparent assumptions, the analysis predicts that less than half of all firms will remain profitable by the end of 2020, about 5-10 percent of the formal aggregate annual payroll will be lost, and firm exit rates will double. As a result, it is expected that tax revenue remitted by the corporate sector will fall by at least 1.5 percent of baseline gross domestic product. Differences in sectoral composition and firms' cost structures generate heterogeneity in the results across countries: wage subsidies are less effective in low-income countries and government revenue losses are smaller.Publication The Impact of COVID-19 on Formal Firms in Honduras(World Bank, Washington, DC, 2021-01)We measure the impact of the COVID-19 (coronavirus) crisis and the resulting lockdown on formal firms in Honduras, using monthly value-added tax records for January 2018 to August 2020. Firms' revenue fell by 26 percent, or 342.6 billion lempiras (USD 14.3 billion), in real terms between March and August 2020 and the same period in 2019. Sectors subject to stricter containment measures experienced larger revenue losses. The service sector was the most severely affected, experiencing a 45 percent revenue loss. Larger firms experienced smaller revenue losses than smaller firms, even when accounting for the sectoral composition of firm-size groups. A non-negligible number of firms remained shut down until the end of available data in August 2020.Publication The Effects of Business Environments on Development : Surveying New Firm-Level Evidence(2010-08-01)In the past decade, the World Bank has promoted improving business environments as a key strategy for development, which has resulted in a significant amount of investment in collecting firm-level investment climate surveys across countries. What lessons have emerged from the papers using these new data? The key finding is that the effects of business environments are heterogeneous and depend crucially on industry, initial conditions, and complementary institutions. Some elements of the business environment, such as labor flexibility, low entry and exit barriers, and a reasonable protection from the "grabbing hands" of the government, seem to matter a great deal for most economies. Other elements, such as infrastructure and contracting institutions (courts and access to finance), hinge on their initial status and the size of the market.Publication Globalization, Wages, and the Quality of Jobs : Five Country Studies(World Bank, 2009)The country studies in this volume analyze the link between globalization and working conditions in Cambodia, El Salvador, Honduras, Indonesia, and Madagascar. These countries vary significantly in population, economic circumstances, region, history, and institutions. All have experienced liberalization and globalization in the last 20 years. The heterogeneity of these countries provides the basis for a useful comparison of the effects of globalization on working conditions. As suggested in the framework, each country study has three main components: a description of the country's experience with globalization, a qualitative part that analyzes country-specific aspects of working conditions, and an analysis of changes in interindustry wage differentials (IIWDs) that can be compared across countries. In general, globalization has been characterized by export-driven foreign direct investment (FDI) concentrated in relatively few sectors. Export-driven FDI in the apparel sector plays a prominent role in each country, although to varying degrees. In Cambodia, apparel made up 82 percent of all merchandise exports in 2003. Nearly two-thirds of that total was destined for the U.S. market. Virtually all factories in the Cambodian garment sector are foreign owned. Honduras rose from being the 34th largest supplier of apparel to the United states (U.S.) market in 1990 to fourth place in 2003. In 2003, two-thirds of all Honduran exports to the U.S. were garments and more than 82 percent of all Honduran workers worked in foreign-owned factories. A similar pattern emerges for El Salvador. For Madagascar, apparel exports from the Zone Franche were the primary force behind the country's remarkable export growth and its transition from exporting primary products to exporting manufactured products between 1990 and 2005. By 2001, Madagascar had become the second most important clothing exporter in Sub-Saharan Africa as measured by total export value.
Users also downloaded
Showing related downloaded files
Publication World Bank Annual Report 2024(Washington, DC: World Bank, 2024-10-25)This annual report, which covers the period from July 1, 2023, to June 30, 2024, has been prepared by the Executive Directors of both the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA)—collectively known as the World Bank—in accordance with the respective bylaws of the two institutions. Ajay Banga, President of the World Bank Group and Chairman of the Board of Executive Directors, has submitted this report, together with the accompanying administrative budgets and audited financial statements, to the Board of Governors.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication Understanding Income Security for Older Adults - Rethink Social Protection and Jobs in an Actively Aging World(Washington, DC: World Bank, 2025-01-14)The note first discusses the main pillars of financial securityat older ages before focusing on the status of contributory and noncontributory (orsocial) pension systems in developing countries. It highlights worrying under-coverage ofcontributory pension systems in the face of persistent labor market informality, as well asthe rise of social pensions and innovative informal sector matching schemes in response,and the trade-offs between coverage, adequacy and sustainability of pension systems. Itthen reviews World Bank support on the old age financial protection agenda, includingdifferent forms of budget support and investment lending, policy advisory and analyticalwork, capacity building and technical assistance (TA), and convening. It concludes bynoting the need to broaden the policy dialogue to wider dimensions of old age financialwell-being, as well as innovating with public sector and market instruments which candiversify sources of financial security at older ages.Publication Dynamic Effects of Fiscal Rules(Washington, DC: World Bank, 2025-02-19)Fiscal rules have been shown to support fiscal discipline by improving government budget balances and restraining the growth of debt. However, questions remain about what enhances their effectiveness and how certain conditions help to build the credibility needed for their survival and success. Using data from 108 countries between 1984 and 2012, this paper studies the dynamic effects of fiscal rule adoption. It shows that although fiscal rules generally improve the primary balance, their effects depend on the time horizon under consideration and the context of adoption. In advanced economies and countries with strong political institutions, the effects strengthen over time. Conversely, in emerging markets and developing economies—especially those with weaker institutions—their impact tends to fade as time passes. The findings highlight the critical role of economic conditions and consensus building at the time of adoption. Specifically, fiscal rules introduced in times of economic hardship or under highly concentrated political power are often less effective in the medium term.Publication Greater Heights(Washington, DC: World Bank, 2025-03-12)Twenty-seven countries have reached high-income status since 1990. Ten of these are in the Europe and Central Asia region and have joined the European Union. Another 20 in the region have become more prosperous since the 1990s. However, their transition to high-income status has been delayed. These middle-income countries have found that the prospects for growth to high-income status have become even more difficult since the 2007–09 global financial crisis. This reflects partly a slowdown in structural reforms at home and partly the challenges associated with a deterioration in the global environment. The concern has emerged that many countries in the region may be caught in the middle-income trap, a phase in development characterized by a recurring deceleration in growth and by per capita incomes that are systematically below the high-income threshold. To ensure that these countries overcome the obstacles to growth and achieve progress toward high-income status, policy makers need to make the transition from a strategy driven largely by investment to a strategy that is supported by the importation and diffusion of global capital, knowledge, and technology and then to a strategy that complements these with innovation. The report Greater Heights: Growing to High Income in Europe and Central Asia relies on the 3i strategy described in World Development Report 2024—investment, infusion, and innovation—to propose policy options to assist middle-income countries in Europe and Central Asia in the effort to reach high-income status. Drawing on comprehensive empirical analysis, the report offers actionable recommendations that will enable policy makers to advance stronger economic growth across the region. Such a transition will require continued and sustained foundational reform to maximize the drivers of economic growth while pivoting to new transformative reforms to promote the development of more complex economic structures and institutions. These involve the need to discipline incumbents, boost the role of the private sector, strengthen the competitive environment, and reward merit. The emphasis on a strategy driven by innovation is also critically important for those countries that have already attained high-income status.