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Ian W.H. Parry, Mr. Simon Black, and Nate Vernon
This paper provides a comprehensive global, regional, and country-level update of: (i) efficient fossil fuel prices to reflect their full private and social costs; and (ii) subsidies implied by mispricing fuels. The methodology improves over previous IMF analyses through more sophisticated estimation of costs and impacts of reform. Globally, fossil fuel subsidies were $5.9 trillion in 2020 or about 6.8 percent of GDP, and are expected to rise to 7.4 percent of GDP in 2025. Just 8 percent of the 2020 subsidy reflects undercharging for supply costs (explicit subsidies) and 92 percent for undercharging for environmental costs and foregone consumption taxes (implicit subsidies). Efficient fuel pricing in 2025 would reduce global carbon dioxide emissions 36 percent below baseline levels, which is in line with keeping global warming to 1.5 degrees, while raising revenues worth 3.8 percent of global GDP and preventing 0.9 million local air pollution deaths. Accompanying spreadsheets provide detailed results for 191 countries.
Ian W.H. Parry
The United States has pledged to become carbon neutral by 2050, meet sectoral objectives (e.g., for carbon free power, electric vehicles) and encourage greater mitigation among large emitting countries and of international transportation emissions. Fiscal policies at the national, sectoral, and international level could play a critical role in implementing these objectives, along with investment, regulatory, and technology policies. Fiscal instruments are cost-effective, can enhance political acceptability, and do not worsen, or could help alleviate, budgetary pressures. Domestically, a fiscal policy package could contain a mix of economy-wide carbon pricing and revenue-neutral feebates (i.e., tax-subsidy schemes) with the latter reinforcing mitigation in the transport, power, industrial, building, forestry, and agricultural sectors. Internationally, a carbon price floor among large emitters (with flexibility to implement equivalent measures) could effectively scale up global mitigation, while levies/feebates offer a practical approach for reducing maritime and aviation emissions.
Sebastian Beer
Profit shifting remains a key concern in international tax system debate, but discussions are largely based on aggregate estimates, with less attention paid to individual sectors. Drawing on a novel dataset, we quantify tax avoidance risks in the extractive industries, a sector which is revenue critical for many developing economies. We find that a one percentage point increase in the domestic corporate tax rate has historically reduced sectoral profits by slightly over 3 percent; and the response tends to be more pronounced among mining than among hydrocarbon firms. There is only weak evidence transfer pricing rules contain tax minimization efforts of MNEs in our sample, but interest limitation rules (e.g., thin capitalization or earnings based rules) do reduce the observable extent of profit shifting. Our findings highlight the challenge of taxing income in the natural resource sector and suggest how fiscal regime design might be strengthened.
International Monetary Fund. African Dept.
This Selected Issues paper focuses on macro-critical issues related to governance and corruption in Democratic Republic of the Congo (DRC). Third-party indicators suggest that governance has been poor and corruption widespread in the country. Conducting an audit of the civil service and improving the transparency of its remuneration system, simplifying tax payment processes, and merging the activities of the numerous revenue agencies would boost public efficiency and improve the business environment. Contract enforcement and protection of property rights could be enhanced by insulating the courts from external influence. Limited information on the budget annexes and special accounts and little or no oversight by the central government, Parliament, and civil society, create scope for corruption. The multiplicity of special taxes and fees, some accruing to special accounts outside the Treasury, generate opportunities for corruption and informalization of economic activity. Despite some progress in strengthening public financial management, budget execution remains deficient. The government has formalized the four stages of the expenditure chain and introduced budget commitment plans to align expenditures with revenues.