Question:
You are given the full text of a scientific research paper.

    Your task is to generate a structured **policy brief** that includes the following components:

    - A concise, descriptive **title** that captures the central theme or policy issue addressed in the paper (do not label it with “Title:”).
    - **Policy Problem** - What societal or strategic challenge is the paper addressing?
    - **Scientific Research Findings** - What are the key results relevant to this issue?
    - **Scientific Research Study Methods** - What methodology or data supports these findings?
    - **Policy Implications** - How might the findings guide or influence policy?

    Write each section in a clear, accessible style suitable for policymakers. Avoid overly technical language, but use essential terms when necessary. Structure the output as a labeled five-part policy brief document.

    Scientific Research Paper:
    Nature Climate Change | Volume 14 | April 2024 | 353–356
353
nature climate change
https://doi.org/10.1038/s41558-024-01952-0
Article
Global corporate tax competition challenges
climate change mitigation
Yuwan Duan
  1, Zengkai Zhang
  2
, Yuze Li
  3, Shouyang Wang
  4,5,6,
Cuihong Yang4,5 & Yi Lu
  7
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.
Over the past two decades, an increasing number of countries have
been engaging in a ‘race to the bottom’ on corporate tax rates.
Some countries have even implemented a zero tax rate to attract
international capital inflows. Multinational enterprises (MNEs) may
take advantage of differing tax regimes between jurisdictions and
effectively avoid paying taxes. To prevent this, a global minimum
tax, the second pillar of the overall global tax reform agreement,
was approved by over 130 countries and jurisdictions in October
2021. The reform is designed to ensure that MNEs are subject to a
minimum tax rate of 15% in every country of operation starting in
2023. As MNEs play a central role in shaping countries’ production
patterns, the global race to the bottom in corporate tax and the global
minimum tax reform may reshape the global production network,
adversely impacting economic and environmental development. Cor-
porate tax-cutting may even offset the burden of climate regulations
and challenge CO2 mitigation. For instance, developing countries,
which usually have greater carbon intensity and lower corporate
tax rates, tend to be tax havens1. Consequently, the global tax race
has led to more production moving to developing countries and
reshaping the global production network, which could increase
global carbon emissions.
A regression analysis of corporate tax rate cuts and changes in
carbon emissions at the country level suggests a negative correla-
tion between them. This analysis controlled for population, gross
domestic product (GDP) per capita and energy use per unit of GDP,
and encompasses 56 countries over a 10-year period (Supplementary
Information 1). Results suggest that corporate tax competition could
hinder climate cooperation and present challenges to climate change
mitigation efforts2. Corporate tax competition influences the geo-
graphical distribution of production and global emissions by influenc-
ing foreign investment flows and trade flows, which are the two main
channels of international carbon transfer. Intuitively, a corporate tax
cut in one country would increase the net profits of firms located in
this country and attract more multinational production (MP) activi-
ties, which may further stimulate more exports. Meanwhile, changes
in corporate tax rates also affect government revenue, which in turn
can have an impact on a country’s consumption patterns and overall
output. The production allocation would further change global and
regional CO2 emissions. To comprehensively quantify the emission
effect of the global corporate tax changes, we build a multi-country
multi-industry general equilibrium model by incorporating MNEs,
international trade flows and corporate tax. We calibrate the model
Received: 8 January 2023
Accepted: 6 February 2024
Published online: 28 March 2024
 Check for updates
1School of International Trade and Economics, Central University of Finance and Economics, Beijing, China. 2State Key Laboratory of Marine
Environmental Science, College of the Environment and Ecology, Xiamen University, Xiamen, Fujian, China. 3Questrom School of Business, Boston
University, Boston, MA, USA. 4Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, China. 5School of Economics
and Management, University of Chinese Academy of Sciences, Beijing, China. 6School of Entrepreneurship and Management, ShanghaiTech University,
Shanghai, China. 7School of Economics and Management, Tsinghua University, Beijing, China.
 e-mail: zengkaizhang@xmu.edu.cn

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Figure 1 shows the change in regional CO2 emissions caused by global
corporate tax competition.
There is a significant negative correlation between changes in CO2
emission (in percentages) and corporate tax cuts. Intuitively, corporate
tax cuts would lead to an increase in the economy’s output and subse-
quently result in higher local CO2 emissions. The simulation results
indicate that China experienced the most substantial increase in emis-
sions in absolute terms, with emissions rising by 0.7%. The corporate
tax rate in China has decreased from 33% in 2005 to 25% in 2016, which
has attracted more global production to move to China and thereby led
to an increase in industrial output and emissions. Similarly, emerging
economies, such as India and Vietnam, also experienced corporate
tax cuts and increasing CO2 emissions. The CO2 emissions of emerging
countries are sensitive to changes in corporate tax rates. Meanwhile,
some developed economies, such as Japan, Italy and Germany, also
cut their corporate tax sharply. Germany’s CO2 emissions increased
by 1.8%, as its corporate tax decreased from 38.3% in 2005 to 29.7% in
2016. In contrast, the United States’s corporate tax remained consistent
over the studied period. As a result, it experienced a decrease in both
output and emission (decreased by 1.2%).
Welfare is a composite measure encompassing both real income
and the disutility arising from global carbon emissions, following the
framework outlined in ref. 22. Real income is measured as the national
income divided by the consumption price. We find that the global
corporate tax competition from 2005 to 2016 resulted in a 0.029%
increase in the weighted average of real income of different economies
by GDP. The corporate tax cut has reduced production distortions, real-
located production to the regions with high marginal labor products
and improved global economic efficiency, which brought real income
gains. Meanwhile, the global corporate tax cut raised global carbon
emissions, negatively impacting national welfare. The changes in real
income notably outweighed the disutility brought about by carbon
emission, and the weighted average welfare of different regions by
GDP in the benchmark year increased by 0.011%.
The emission impact mechanism of global tax
competition
Corporate tax competition alters regional production in two ways: first,
by exerting an influence on final consumption via its impact on govern-
ment revenue and wage income; second, by engendering a reconfigu-
ration of the global production chain through its effects on MP and
trade patterns. We decompose the emission effect into scale effect and
structural effect using equation (18). The scale effect captures the emis-
sion changes attributable to shifts in countries’ consumptions, while
the structural effect reflects the emission changes stemming from the
changes in MP and trade patterns across economies (the share of an
economy’s production in each of other economies’ total expenditures).
Figure 2 depicts our decomposition results.
The simulation results show that for most regions, the scale effect
overwhelmingly dominates their respective emission changes. To
illustrate, the scale and structural effect increased China’s territorial
CO2 emissions by 0.6% and 0.1%, respectively. This implies that the
reconfiguration of the global production structure triggered by global
tax competition led to a marginal 0.1% rise in China’s emissions, while
changes in income patterns across countries caused a more substantial
0.6% increase. Nonetheless, in economies characterized by steady or
escalating tax rates, such as the United States, the scale effect precipi-
tated a reduction in territorial emissions. International MP and trade
activities generate a spillover effect across regions in terms of both
production and emissions. Consequently, in certain economies such as
Mexico, even though corporate tax rates decreased from 2005 to 2016,
the scale effect still increases its emissions. This could be attributed
to the fact that the increase in import partners’ income stimulates
production in Mexico through trade connections, thereby leading to
increased production and emissions.
and quantify the economic and emission impacts of two global corpo-
rate tax shocks: the global corporate tax competition and the global
minimum tax policy approved by OECD (Organisation for Economic
Cooperation and Development) countries in 2021.
There are three main strands of literature relevant to our study.
The first strand of literature analyses the causal relationship between
environmental policy and foreign investment theoretically3,4, or empiri-
cally using reduced-form regressions5–10. Most of these studies focus on
pollution rather than climate change; moreover, they only capture the
partial equilibrium effect of direct foreign investment while ignoring
the general equilibrium effect. More importantly, these studies have
yet to investigate the effect of international tax competition on global
emissions. The second strand of studies investigates the welfare conse-
quences of the interaction between trade and multinational production
in general equilibrium frameworks11–15. However, these studies do not
include environmental issues. The third strand of studies focuses on
the intersection of trade and the environment using a general or partial
equilibrium framework. However, these studies fail to consider the role
of multinational production16–21.
The emission and welfare effect of corporate tax
competition
To quantify the emission and welfare effect of global tax competition,
we first calibrate our general equilibrium model to 2016, which we
denote as our benchmark equilibrium. On the basis of the benchmark
equilibrium, we conduct our first counterfactual by forcing all econo-
mies’ corporate tax changes as they actually did in 2005‒2016 while
keeping other exogenous variables constant. The corporate tax in
most countries decreased notably from 2005 to 2016 (Supplementary
Information 2), indicative of intense tax competition. We found that the
global corporate tax competition from 2005 to 2016 increased global
emissions by 128.7 Mt, which is equivalent to 0.4% of global CO2 emis-
sions from fuel combustion in 2016 (32,141 Mt) based on International
Energy Agency (IEA) data. Emissions in developing countries increased
by 118.5 Mt, but only by 10.2 Mt in developed countries. Global corpo-
rate tax competition shifts more emissions to developing economies.
Canada
China
Germany
India
Japan
USA
Rest of world
10 Mt
30 Mt
50 Mt
–3
–2
–1
0
1
2
3
–12
–8
–4
0
4
Change in CO2 emissions (%)
Change in corporate tax rates (%)
r = –0.82
P < 0.01
Fig. 1 | The emission impact of corporate tax competition over the period
1995–2016 at the regional level. In this paper, the changes in tax rates are
measured in relative terms, specifically by computing the ratio of the new tax
rates incremented by one, divided by the old tax rates incremented by one. The
y axis measures the changes in CO2 emission (in percentages) caused by global
corporate tax competition. The size of each circle denotes the volume of the
absolute change in regional CO2 emissions. We employ the Pearson correlation
coefficient (r) to assess the degree of correlation, and the P value is two-sided.

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Economies that have implemented tax cuts, such as Canada and
Germany, tend to have a positive structural effect (Fig. 2). Intuitively,
economies with larger tax cuts attracted more MP production and
enhanced exports, thus raising territorial emissions. Supplementary
Figs. 1 and 2 (in Supplementary Information 3) present the negative
correlations between the changes in MP production and changes in
exports against corporate tax cuts at the country level. Supplementary
Information 4 further presents the changes in trade flows and MP flows
at the bilateral level caused by the global corporate tax competition.
Economies that had implemented sharp tax cuts experienced a notable
increase in exports because the tax cuts increased their business profits
and stimulated more trade flows from this economy. Meanwhile, a
country’s corporate tax decrease would confer a comparative advan-
tage and make it more appealing to foreign businesses. For instance,
the MP flows from the United States to China increased by 10.0%, while
MP flows to the United States decreased sharply. The above shows that
both the MP and trade elements are essential for accurately quantify-
ing the emission effects of corporate tax changes (Supplementary
Information 5).
Scenario analysis of 15% global minimum
corporate tax
In 2021, G20 countries proposed a global minimum corporate tax of at
least 15% for MNEs. We quantify the potential welfare and environmental
effects of this policy by forcing a 15% corporate tax rate on economies
whose original corporate tax is less than 15% based on the benchmark
equilibrium in 2016. The simulation results show that global carbon
emissions would exhibit a reduction of 45.0 Mt (0.14% in relation to the
total emissions observed in 2016) in this counterfactual. This implies
that the global minimum corporate tax would contribute to climate
change mitigation. However, the increase in corporate tax rate would
introduce additional distortion to global production, and lead to a
reduction in regional real wage (Supplementary Information 6) and
global welfare by 0.002%. The impact of both the emission and wel-
fare effects resulting from the minimum corporate tax rate policy is
notably more modest compared with that of global tax competition.
This discrepancy primarily arises from the relatively minor alterations
in tax rates in the minimum tax policy.
Table 1 summarizes the change in regional emissions, as well as the
scale effect and structural effect of this exercise for the major econo-
mies. Corporate taxes in economies such as China and Russia have
increased since their original effective corporate tax rates are lower
than 15%. Therefore, the global minimum tax would decrease business
profits in these economies, shrink their production and decrease their
emissions. CO2 emissions in China and the EU decreased by 0.30%
and 0.28%, respectively (Table 1). In contrast, the economies whose
original effective corporate tax rates are equal to or exceed 15% could
potentially reap competition advantages from the minimum tax policy.
This could manifest through an enhanced capacity to attract more
production and annex a larger portion of their competitor’s market
share, which consequently resulted in more emissions. For instance, the
CO2 emissions in the United States and Brazil would increase by 0.06%
and 0.05%, respectively. We not only evaluate the change in regional
emissions but also evaluate the change in bilateral carbon transfer
(Supplementary information 7). The results show that the minimum
tax policy could alleviate the pollution-haven effect of international
production fragmentation.
Different from the effect of global tax competition, the structural
effect plays a larger role than the scale effect for ~60% of the econo-
mies in this exercise. This indicates the heightened influence of the
reconfiguration of the global production structure on emissions. The
difference primarily stems from the more pronounced dispersion of
tax rate changes across countries in this exercise than that in the exer-
cise on global tax competition. The coefficient of variation for tax rate
changes for the two exercises are 1.24 and 0.82, respectively. A more
pronounced disparity in tax rate changes among countries would lead
to larger shifts in competitive advantage and consequently result in
a relatively greater transformation of production structures. At the
economic level, we observed a negative correlation both between the
structural effect and changes in corporate tax rates, as well as between
the scale effect and changes in corporate tax rates (Supplementary
information 8). An increase in a country’s corporate tax rate would
trigger relocation of production activities from the country, thereby
leading to a decrease in its output, emissions and income levels. This
decline in income would in turn result in reduced demand for products,
consequently amplifying the reduction in both output and emissions.
Discussion
We found that global corporate tax competition increased global car-
bon emissions and the introduction of a global minimum 15% tax rate
could mitigate the negative impact of such competition on climate
change mitigation. However, the impact is somewhat limited. The 15%
minimum corporate tax rate, while a positive step, remains relatively
low and should be seen as an initial effort to address the issue of global
corporate tax competition. Furthermore, the minimum corporate
tax primarily addresses regional disparities in global corporate tax
competition and does not account for sectoral variations in carbon
intensity. On the basis of our findings, we suggest that corporate tax
adjustment should be coordinated with the implementation of cli-
mate policies. For example, a higher minimum corporate tax could be
imposed on fossil-fuel companies, thereby contributing to the phasing
out of fossil-fuel subsidies. Sectors with higher emission intensity have
expanded their scales more due to global tax competition (Supple-
mentary Information 9). Meanwhile, the increased revenues resulting
from these minimum tax reforms should be directed towards initia-
tives aligned with low greenhouse gas emissions and climate-resilient
development, such as financing renewable energy development to
accelerate the transition to cleaner energy sources.
The present study mainly focuses on the impact of tax change
on regional and global carbon emissions through reshaping global
production and investment patterns. However, it is worth noting
that these policies may impact regional emissions through other
channels. For instance, the global corporate tax rate would reduce
government revenue23 and further decrease governments’ financial
investment in low-carbon technology, which may negatively impact
climate change mitigation, especially in developing economies. Mean-
while, cross-country trade and investment flows may transfer clean
production technology across countries24,25. Therefore, when tax
changes impact trade and investment flow, production technology
UK
Canada
China
Germany
Japan
India
Rest of world
USA
10Mt
30Mt
50Mt
–1.0
–0.5
0
0.5
1.0
1.5
–1.0
0
1.0
2.0
Structure efect (%)
Scale efect
(%)
Fig. 2 | The change in regional emissions through the scale and structure
effects.  The size of each circle denotes the volume of the absolute change in
regional CO2 emissions.

Nature Climate Change | Volume 14 | April 2024 | 353–356
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in each country may also change and thus, impact global and regional
emissions. Future studies could consider these channels. In addi-
tion, there are also different carbon accounting principles, such as
production-based and consumption-based accounting principles26.
This study mainly focuses on production-based emission changes.
Since a change in global tax rates could seriously impact cross-country
trade and investment patterns, consumption-based emissions may
differ from production-based emissions. Future studies should
explore this.
Online content
Any methods, additional references, Nature Portfolio reporting sum-
maries, source data, extended data, supplementary information,
acknowledgements, peer review information; details of author contri-
butions and competing interests; and statements of data and code avail-
ability are available at https://doi.org/10.1038/s41558-024-01952-0.
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2024
Table 1 | Changes in regional emissions under the 15% global
minimum corporate tax
Change in CO2 (%)
Structure effect (%)
Scale effect (%)
Australia
0.05
0.14
−0.09
Brazil
0.05
0.10
−0.04
Canada
−1.63
−1.01
−0.61
China
−0.30
−0.10
−0.19
EU
−0.28
−0.07
−0.21
India
0.00
0.04
−0.04
Indonesia
−0.04
0.01
−0.06
Japan
−0.13
0.03
−0.16
Korea
−0.07
0.03
−0.11
Mexico
0.03
0.04
−0.01
Norway
0.09
0.16
−0.07
Russia
−0.36
−0.10
−0.27
Switzerland
−0.91
−0.40
−0.51
Turkey
−0.02
0.03
−0.06
United States
0.06
0.12
−0.06
The EU countries are presented as a union in Table 1.

Nature Climate Change
Article
https://doi.org/10.1038/s41558-024-01952-0
Methods
General equilibrium model incorporating trade and MP
We build a multicountry multi-industry general equilibrium model
by incorporating MNEs, international trade flows and corporate tax
to quantify the emission effect of corporate tax changes27. Specifi-
cally, we extended the quantitative trade and MP model developed
by refs. 11,12, by incorporating corporate tax and linking production
to environmental emissions. In the model, a firm from country i can
serve country n by building an affiliate (MP) in country l and shipping
goods to country n (Trade). This entails MP costs associated with the
pair {i, l} and trade costs associated with the pair {l, n}. Given these
costs between countries, a firm in any country chooses how much of
its products will serve market n, and via which production location
it will serve market n to maximize profit. Then, a corporate tax cut in
country B would increase the profits of the production located in B and
attract more MP activities and stimulate more trade flows from B. The
expansion of production in B would directly increase the CO2 emissions
through a scale effect. It would also increase labor demand and lift the
wage level in B, as labor is a necessary input in production. However, the
wage change in B would further reshape MP flows to B and trade flows
from B by influencing marginal production costs. Meanwhile, tax cuts
in B would impact output and emissions in B and other countries. For
example, the tax cut in B will decrease the income of its competitors
by taking up their market share. In other words, corporate tax cuts in
one country would impact both MP and trade flows across countries
and reshape global production and emission networks.
Consider a world economy comprising i = 1, …, N countries, j = 1,
…, J sectors and one factor of production, labor; sector j in country i has
a fixed number M j
i  of firms, each of which produce one product variety
indexed by ω j ∈[0, 1] using labor under monopolistic competition. We
assumed that each product has no input–output linkage with others.
Households. In each country, there are a measure of Ln representative
households at a wage rate wn that maximize utility by consuming final
goods from different sectors Q j
n with welfare function of
Un =
j
∏
j=1
Q j
n
α j
n
1
[1 + (
∑j∑i∑le j
il
μn
)
2
]
(1)
where ∑jα j
n = 1. The first bracketed term represents the utility from
consuming goods and the second bracketed term in the equation
represents the disutility from carbon emissions. e j
il is the CO2 emissions
emitted by firms of the sector j from country i located in country l. the
parameter μn dictates the social cost of CO2 emissions. Supplementary
Information 10 provides a more detailed discussion on how we incor-
porated environmental issues and sector heterogeneity into the model.
With Cobb–Douglas preferences, the consumption price index in
country n is given by Pn =
j
∏
j=1
(
P j
n
α j
n )
α j
n, where P j
n is the consumption price
of sector j goods in country n. The production technology of the final
goods Q j
n is given by Q j
n = [∫ω jq j
n (ω j)
σ−1
σ dω j]
σ
σ−1
, where q j
n (ω j) is country
n’s quantity consumption of goods ω j from the lowest-cost supplier.
Production and emissions. Since labor is the only input in produc-
tion, the labor used in producing goods in country n and sector j is a
function of output:
y j
il(ω j) = ̃z j
il (ω j) l
j
l (ω j) ,
(2)
where l j
l (ω j) is labor input and ̃z j
il (ω j) is production efficiency. This
suggests that the marginal cost of each good in country l is wl, the wage
level in country n. The production generates carbon emissions e j
il (ω j)
as a by-product. A firm allocates a portion ζ j
l  of the output y j
il (ω j) to
emission abatement activities to reduce its tax payment. On the basis
of Copeland and Taylor (2001)31, we assumed the pollution abatement
technology to be e j
il (ω j) = (1 −ζ j
l )
1
β j
l y j
il (ω j). The net production after
abatement investment is, q j
il (ω j) = z j
il (ω j) [l j
l (ω j)]
(1−β j
l )
e j
il (ω j)
β j
l , where
z j
il (ω j) = [ ̃z j
il (ω j)]
1−β j
l  and z j
il (ω j) are drawn independently across firms
from a Fréchet distribution with parameters θ j: Pr (z j
il < x)
= exp (−T j
ilx−θ j). θ j governs the dispersion of productivity for the affili-
ates located in different product locations. The firm’s problem implies
that the cost of unit input bundle is c j
il = β j
l
−β
j
l (1 −β j
l )
−(1−β j
l )
(ρl)β j
l (wl)(1−β j
l )
and β j
l =
ρle j
il
c j
ilq j
il
, where wl is the wage and ρl is the emission tax in country l.
Following ref. 12, the average productivity is a combination of produc-
tivities in parent country and in host country, that is, we have T j
il = T j
i T j
l .
International trade costs, prices and profits. Following refs. 12,14,
each firm originating in country i (parent country) chooses the produc-
tion location l (host country) to serve the country n market (consump-
tion country). Each firm from country i that produce in l aces an
idiosyncratic productivity shock z j
il (ω j) and incurs an iceberg multi-
national production (MP) cost r j
il ≥ 1, with r j
ii = 1. Firms that export from
l to n incurs an iceberg trade cost τ j
ln ≥ 1, with τ j
nn = 1. The unit cost for
this firm is:
c j
iln (ω j) =
c j
ilr j
ilτ j
ln
z j
il (ω j)
,
(3)
The standard results for monopolistic competition imply that the
pre-tax profits of firm ωj  from country i serving market n from its plant
in country l can be expressed as:
π j
iln (ω j) = 1
σ [ ̃σc j
iln (ω j)]
1−σ
X j
nP j
n
σ−1
with ̃σ =
σ
σ −1 .
(4)
Here, X j
n = P j
nQ j
n is the total expenditure on sector j goods. Con-
sider a firm in sector j with its headquarters located in country i. The
profits made by its affiliate in country l are subject to the local cor-
porate income tax tl before it can be paid out as dividend. The firm
will choose its production location to serve market n by maximizing
its profits, or to put it differently, by minimizing its tax-adjusted
unit cost:
l j
in(ω j) = arg max
k=1…..N{(1 −tk)π j
ikn(ω j)} = arg min
k=1…..N {(1 −tk)
1
1−σ
ξ j
ikn
z j
ik(ω j)
} ,
(5)
where ξ j
ikn = c j
ikr j
ikτ j
kn. Equation (5) indicates that a firm decides its pro-
duction sites on the basis of the effective cost shifter of taxation
((1 −tl)
1
1−σ), together with production-site-specific productivities
(z j
ik (ω j)), wages in the host countries (wl), and trade friction (τ j
ln) and
MP friction (r j
il).
Expenditure shares. We solved the firm’s choices of production sites
and destination markets, and then aggregated these decisions to coun-
try level. According to the property of the Fréchet distribution, the
probability that each firm in sector j from i serving market n will choose
location l for production is:
φ j
iln =
X j
iln
X j
in
=
T j
il[(1 −tl)
1
1−σ ξ j
iln]
−θ j
∑k T j
ik [(1 −tk)
1
1−σ ξ j
ikn]
−θ j .
(6)
The price of goods of firms originating from i arriving at country
n is:

Nature Climate Change
Article
https://doi.org/10.1038/s41558-024-01952-0
P j
in =
̃σδ j[∑
l
T j
il(ξ j
iln)
−θ j
]
−1
θ j
,
(7)
where δ j = Γ (1 +
1−σ
θ j )
1
1−σ  is a constant. According to the constant
elasticity of substitution (CES) production technology in each country,
the share of total expenditure in country n devoted to goods produced
by firms from i is:
λjE
in =
X j
in
X j
n
=
M j
i (ϕ j
in)
1−σ
∑i′Mj
i′(ϕ j
i′n)
1−σ ,
(8)
where ϕ j
in = [∑lT j
il (ξ j
iln)
−θ j
]
−1
θ j
 represents the average unit cost of goods
from parent country i to market n. We can also obtain the expression
for aggregate price in country n, P j
n = (∑i M j
i P j
in
1−σ
)
1
1−σ.
Denoting X j
iln as the expenditure of sector j country n on goods
produced in country l by firms from country i, and the corresponding
trade share is given by:
λ j
iln =
X j
iln
X j
n
= φ j
ilnλjE
in =
M j
i (ϕ j
in)
1−σ
∑i′ Mj
i′(ϕ j
i′n)
1−σ
T j
il[(1 −tl)
1
1−σ ξ j
iln]
−θ j
∑k T j
ik [(1 −tk)
1
1−σ ξ j
ikn]
−θ j .
(9)
The share of goods produced in country l originating from country
i, that is, the MP share, is given by:
λjM
il =
∑n X j
iln
Y j
l
=
∑n λjE
inφ j
ilnX j
n
Y j
l
,
(10)
where Y j
l = ∑i ∑n Xj
iln  is the total output in country l. The share of
expenditure of country n on goods produced from country l, that is,
the trade share, is given by:
λjT
ln = ∑
i
λ j
iln.
(11)
For country k, total expenditure on goods j is the sum of expendi-
ture by households (α j
k Ik). The total income (Ik) includes the wage
revenue (wkLk), the trade deficit (Dk), the corporate tax revenue (∧k),
the emission tax revenue (γk) and the profits from MP firms (πk). The
market clearance condition implies that:
X j
k = α j
kIk,
(12)
where Ik = wkLk + Dk +∧k + γk + πk  and ∧k = ∑j∧j
k , πk = ∑jπ j
k , γk = ∑jγ j
k .
From the production technology, we have ∧j
k =
tk
σ ∑i∑nX j
ikn =
tk
σ Y j
k ,
π j
k = ∑l ∑n (1 −tl)
1
σ X j
kln and γ j
k = ρke j
ik =
σ−1
σ β j
k Y j
k. The labor market clear-
ance condition implies that:
wkLk = σ −1
σ
∑j [(1 −β j
k ) Y j
k ] .
(13)
The total emission in country l is given by:
e j
l = ∑i∑je j
il = ∑j
σ −1
σρl
β j
l Y j
l .
(14)
Definition
Given local fundamentals {Li, T j
il, M j
i }, spatial frictions {τ j
ln, γ j
il} and param-
eters {σ, θ j, ρl,α j
l , β j
l }, a competitive equilibrium under corporate tax
structure {tl} and emission tax { ρl} is a wage vector {wl} that satisfy
equilibrium condition (12) and (13), where the related variables are
defined by equations (3) and (6)–(11) for all countries. Note that once
we solved wl for each country, other endogenous variables such as X j
i ,
λ j
iln are immediately obtained by using equations (6)–(11) and (14).
Following ref. 14, we used Exact-hat algebra to solve the equilib-
rium to reduce the burden of parameter calculation. For each variable
x in the original equilibrium, we denoted x′ as its counterfactual value
and ̂x =
x′
x  as the relative changes. Then the equilibrium conditions in
relative changes satisfy the following equations:
The change in trade share ∶̂λ j
iln =
( ̂ϕ j
in)
(1−σ)
∑i′ λjE
i′n( ̂ϕ j
i′n)
(1−σ)
̂φ j
iln
(15)
The product market clearance condition ∶X j
k
′
= α j
k I j
k
′
(16)
The labor market clearance condition ∶ˆwl =
∑j ∑i ∑n (1 −β j
l )Xj′
iln
∑j ∑i ∑n (1 −β j
l )X j
iln
(17)
where
̂ξ j
iln = (ˆρl)
β j
l (ˆwl)
1−β j
l , (ˆ
1 −tl) =
1−tl
′
1−tl , ̂ζ j
iln = (ˆ
1 −tl)
1
1−σ ̂ξ j
iln,
ˆφ j
iln =
( ̂ζ j
iln)
−θ j
∑l′ [( ̂ζ j
il′n)
−θ j
φ j
il′n]
.
and ̂ϕ j
in = [∑l ̂ξ j−θ j
iln
T j
il(ξ j
iln)
−θ j
∑l′ T j
il(ξ j
iln)
−θ j ]
−1
θ j
.
Note that {Li, T j
il, τ j
ln, γ j
il} are absent from these hat change expres-
sions. This simplifies the estimation of the model. Given a vector of
corporate tax shock, we can solve the relative change of each variable
in the new equilibrium compared to the benchmark equilibrium using
the above equations, and then calculate the relative changes in welfare
and carbon emissions.
As previously mentioned, corporate tax competition would impact
MP and trade activities across countries, reshaping global produc-
tion networks and emission networks. To provide a more intuitive
understanding of how the corporate tax rate changes impact global
emissions, we decomposed the emission effect of the corporate tax
changes into scale effect and structural effect:
d ln el =
1
el ∑j [υ j
l ∑i∑n (X j
ilnd ln X j
n)]
+
1
el ∑j [υ j
l ∑i∑n (X j
ilnd ln
X j
iln
X j
n )] ,
(18)
where υ j
l = e j
l /Y j
l  is the emission intensity, that is, emission directly emit-
ted per output of sector j good in country l. The first term in equation
(18) reflects the scale effect, representing the emission changes attribut-
able to shifts in countries’ consumption patterns. The second term in
equation (18) is the structural effect, which reflects the emission changes
resulting from shifts in an economy’s production share within each of
the other economies’ total expenditures. Consequently, it underscores
the role of changes in MP and trade patterns across economies.
Data and calibration
To solve the equilibrium, we calibrated the model to the year 2016,
which is the most recent year for the ICIO–AMNE (Inter-Country Input–
Output, Activity of Multinational Enterprises) tables (https://www.
oecd.org/sti/ind/analytical-amne-database.htm). We imputed bilateral
trade and MP shares and consumption preference α j
l  from the ICIO–
AMNE 2016 data constructed by the OECD28, and set θ = 4.5 and σ = 4

Nature Climate Change
Article
https://doi.org/10.1038/s41558-024-01952-0
following ref. 12. The effective corporate tax rates for the different
economies were obtained from the World Bank (http://www.doingbusi-
ness.org/). The changes in the corporate tax rates of the different
regions were obtained from KPMG (https://home.kpmg/xx/en/home.
html). The country sectoral-level emission data were from ref. 29. The
cost- minimizing problem faced by firms implies that β j
l =
ρle j
il
c j
ilq j
il
= ρlυ j
l ,
and therefore β j
l  indicates the share of carbon revenue in output at the
country and sector level. The national carbon revenue in GDP is there-
fore
ρl∑jej
l
GDPl . To estimate β j
l , we first derived the share of the energy and
carbon tax revenue in the GDP at the national level, utilizing the data
from the OECD database. These data, combined with national emis-
sions, yield the emission tax rate ρl at the national level. Subsequently,
multiplying this tax rate by the country-sector-specific emission inten-
sity generates an estimate of βj
l (Supplementary Information 11).
We calibrated the value of the social cost of CO2 emissions param-
eter μn following the method in ref. 21. We chose the values μn, so that
a 1-ton increase in CO2 emissions decreases global GDP by US$29, the
most recent estimate of the marginal social cost of CO2 emissions by
an interagency panel of the US government30. We used the wage level
of the first country as the numeraire. Note that the choice of numeraire
would not impact the changes in the ratio of two nominal variables
(Supplementary Information 12).
Given these, we relied on MATLAB to solve the equilibrium. For a
given change in corporate tax vector ̂t ={ ̂t1, … , ̂tN}, we first guessed a
vector of changes in wages ̂w ={
̂w1, … ,
̂wN} (we have ̂w1 = 1 since the wage
level of the first country was taken as the numeraire), and then calcu-
lated the changes in trade shares and expenditures by using equations
(15) and (16). Finally, substituting the corresponding variables into
equation (17), we verified whether the labor market clearance condition
held. If not, we adjusted our guess of ̂w until the equilibrium condition
(13) was finally obtained. A robustness check of the results is provided
in Supplementary Information 12.
References
27.	 Tian, K., Zhang, Y., Li, Y., Ming, X. & Wang, S. Regional trade
agreement burdens global carbon emissions mitigation. Nat.
Commun. https://doi.org/10.1038/s41467-022-28004-5 (2022).
28.	 Cadestin, C. et al. Multinational Enterprises and Global Value
Chains: The OECD Analytical AMNE Database (OECD Publishing,
2018).
29.	 Zhang, Z., Guan, D., Wang, R., Meng, J. & Du, H. Embodied
carbon emissions in the supply chains of multinational
enterprises. Nat. Clim. Change https://doi.org/10.1038/s41558-020-
0895-9 (2020).
30.	 Interagency Working Group on Social Cost of Greenhouse Gases.
Technical Support Document: Technical Update of the Social Cost
of Carbon for Regulatory Impact Analysis Under Executive Order
12866 (United States Government, 2016).
31.	 Copeland, B. R. & Taylor, M. S. International Trade and the
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Acknowledgements
We gratefully acknowledge the financial support from the National
Natural Science Foundation of China (No. 72394404 to Z.Z.), the
National Social Science Foundation of China (No. 22CJY019 to Y.D.),
the National Natural Science Foundation of China (No. 71988101 to
W.S., No. 72261147471 to Y.D., Nos. 71834004 and 71974141 to Z.Z.),
the major program of the National Social Science Fund of China
(No. 22&ZD086 to Y.D., No. 19ZDA062 to Y.C., No. 20&ZD079 to Y.L.).
Special thanks to Longfei Cai and Yuan Gao from Central University
of Finance and Economics in China for the excellent research
assistant work.
Author contributions
Y.D. and Z.Z. designed the research. Y.D. built the general equilibrium
model and wrote the methods. Z.Z. created figures and drafted
the initial manuscript. Y. Li. collected the raw data and revised the
manuscript. S.W., C.Y. and Y. Lu. commented on the results and
discussion. All authors contributed to writing the manuscript and
discussed the results at all stages.
Competing interests
The authors declare no competing interests.
Additional information
Supplementary information The online version contains
supplementary material available at
https://doi.org/10.1038/s41558-024-01952-0.
Correspondence and requests for materials should be addressed to
Zengkai Zhang.
Peer review information Nature Climate Change thanks Luis Lopez and
the other, anonymous, reviewer(s) for their contribution to the peer
review of this work.
Reprints and permissions information is available at
www.nature.com/reprints.

    Policy Brief:

Answer:
**Global corporate tax competition leads to unintended yet non-negligible climate impacts**

**Policy Problem**Over the past two decades, an increasing number of countries have been decreasing their corporate tax rates in a competitive effort to attract international capital inflows. The worldwide competition to lower corporate taxes could pose challenges to climate change mitigation efforts, especially because developing nations with higher carbon-intensity might become tax havens. To capitalize on lower corporate taxes, multinational enterprises might shift their production activities to these regions, potentially increasing global carbon emissions. However, such claims lack quantitative support. Understanding the potential environmental impacts of global corporate tax competition is crucial for policymakers interested in developing sustainable economic policies that prioritize environmental conservation and address the challenges posed by global corporate tax competition.

**Scientific Research Findings**We find that the global corporate tax competition from 2005 to 2016 resulted in an increase in global emissions by reshaping the geographical distribution of production through an impact on trade and investment. This leads to a shift of more emissions towards developing economies, with a notable rise of 118.5 MtCO2emissions in developing countries compared with a modest rise of 10.2 MtCO2in developed countries. To address the global corporate tax competition, more than 130 countries and jurisdictions approved a global minimum tax rate of 15% in October 2021. We find that the global minimum corporate tax would contribute to climate change mitigation, albeit to a modest extent. Our study may underestimate the environmental effects of global corporate tax competition as we do not consider its negative impact on low-carbon technology.

**Scientific Research Study Methods**We develop a theoretical multi-country, multi-industry general equilibrium model. By taking into account multinational enterprises, international trade flows and corporate tax, the constructed model is suitable for analysing the impact of tax change on regional and global carbon emissions through reshaping global production and investment patterns. We first calibrate our general equilibrium model to 2016 data, based on the ICIO–AMNE (Inter-country Input–Output and Activity of Multinational Enterprises) tables and other data from KPMG, the World Bank and the Organisation for Economic Co-operation and Development (OECD) database. The data are publicly available and can be freely downloaded. We further conduct two counterfactuals to quantify the welfare and environmental impacts of global corporate tax competition and the OECD’s global minimum tax policy. Welfare is a composite measure encompassing both real income and the disutility arising from global carbon emissions. We conduct our first counterfactual by forcing all economies' corporate tax rate changes as these economies actually did from 2005 to 2016 while keeping other exogenous variables constant. We conduct the second counterfactual by forcing a 15% corporate tax rate on economies whose original corporate tax rate was less than 15%.

**Policy Implications**• The environmental impact assessment is essential for formulating fiscal or monetary policies. Specifically, coordinating economic and environmental policies simultaneously is recommended.
• Implementing higher and industry-specific minimum corporate tax rates is recommended to alleviate the challenges posed by climate change.
• The increased revenues resulting from the minimum tax reforms could be considered for use in supporting green investments to further alleviate climate pressure.
• When attracting international investments, policymakers should balance economic objectives with environmental impacts.