{
  "id": 12332247,
  "title": "IMF : Tax cuts in major economies can reduce output elsewhere",
  "url": "https://urgent.news/2026/10/06/imf-tax-cuts-in-major-economies-can-reduce-output-elsewhere",
  "topic": "finance",
  "section": "Finance & Markets",
  "published": "2026-10-06T08:00:03.000Z",
  "source": {
    "name": "3News",
    "slug": "3news",
    "url": "https://3news.com/news/imf-tax-cuts-in-major-economies-can-reduce-output-elsewhere"
  },
  "original_language": "en",
  "account": "The International Monetary Fund (IMF) warns that tax cuts in major economies can lead to reduced output elsewhere. The IMF explains that as production becomes more globally integrated and modern technologies such as data, patents, software, and trademarks grow in importance, multinational corporations can shift where they report profits to places with lower taxes. This leads governments to compete for businesses by lowering tax rates and offering incentives, but anti-avoidance measures are increasing, making multinationals more likely to report profits where they invest.\n\nThe IMF's research, co-authored by Paula Beltran Saavedra, Daisuke Fujii, Gene Kindberg-Hanlon, and Colombe Ladreit, shows that as tax competition evolves, it may increasingly focus on attracting economic activity rather than just profits. A 1 percentage point reduction in headline tax rates in other countries is associated with a 0.4 percentage point reduction at home on average, but this effect varies among economies at similar stages of development.\n\nThe trend towards less sensitivity to tax rates has been observed since the mid-2010s, coinciding with stronger anti-avoidance rules and international reforms to limit tax base erosion and profit shifting. The IMF's findings suggest that corporate income tax cuts in major economies lead to lower economic output in other parts of the world due to negative effects of capital reallocation outweighing positive spillovers from import demand.\n\nWhen a country raises its corporate income tax rate by 1 percentage point relative to others, foreign direct investment inflows decline by about 0.5 percent of GDP over three years. The IMF's simulations show that the short-term effects of financing tax cuts through borrowing include higher real interest rates and smaller investment expansions. In the long term, revenue and output depend on how governments budget, weighing domestic gains against potential reductions in revenue for public investment.\n\nHowever, the IMF notes that some responses to corporate income tax cuts abroad can have positive spillovers due to cross-border knowledge transfers, offsetting the effects of capital reallocation. This is especially beneficial for emerging market and developing economies, as anti-avoidance measures help them preserve fiscal space, which can generate substantial gains for infrastructure, education, health, and other investments. As technology continues to facilitate capital movement, the IMF expects corporate income tax systems to prioritize attracting investment as the link between profits and economic activity strengthens.",
  "summary": "Tax cuts in major economies can reduce output elsewhere, as the effects of capital reallocation can outweigh the benefits from stronger import demand",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}