Global corporate tax competition challenges climate change mitigation

Many countries have cut their corporate tax rates in the past decades to attract foreign investment. To prevent this, a global minimum tax policy was approved by OECD countries in 2021. Global changes in corporate tax rates could reshape production and investment networks while impacting welfare and global emission patterns. Here we develop a theoretical multi-country multi-industry general equilibrium model and show that global corporate tax competition during 2005-2016 would increase global carbon emissions and shift more emissions to developing economies. Implementing a global minimum tax rate of 15% would reduce global carbon emissions and effectively decrease the developing economies' emissions. The results highlight that corporate tax policies should be coordinated with climate regulations. Countries use corporate tax cuts to attract foreign investment, which reshapes patterns of global production. This research shows that such competition will lead to higher carbon emissions and shift them to developing countries, while a global minimum tax could help alleviate these problems.