IMF warns debt-financed tax cuts increase global interest rates

The International Monetary Fund (IMF) warned that corporate income tax policies generate cross-border spillovers through profit shifting, investment reallocation and knowledge transfers.

The IMF released a chapter titled "Intangible Yet Real: Spillovers from Corporate Income Taxation" for its October 2026 World Economic Outlook, stating that tax competition remained a defining feature of the global economy while its nature changed over time.

Authors noted that the globalization of production, the rise of multinational corporations and the growing importance of intangible assets transformed the landscape of corporate income taxation.

The institution highlighted that multinational corporations accounted for more than 20% of global gross domestic product and approximately 15% of global corporate profits.

The study showed that differences in corporate income taxation generated cross-border spillovers as multinational corporations relocated profits and investments across countries to minimize tax liabilities.

The report warned that debt-financed tax cuts increased global interest rates and crowded out investment abroad.

Researchers emphasized that stronger anti-avoidance frameworks supported economic output while protecting tax revenues.

The organization added that a one percentage point increase in a country's corporate income tax rate relative to rates elsewhere caused a cumulative decline in foreign direct investment inflows of about 0.5% of gross domestic product over three years.