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Uncertainties of Tax, Rent and Risk

10 May @ 6:30 pm

Speaker: Dr Ian Roxan (LSE)

The Great Financial Crisis (GFC), the COVID pandemic and the invasion of Ukraine have been fruitful stimuli for innovation in taxation. At the international level the GFC brought us, first the BEPS Project, and now BEPS 2.0 with its two Pillars. Meanwhile the pandemic and the Ukraine invasion have brought renewed interest in windfall taxes, especially on energy.

Windfall taxes are attractive because it is argued that they fall on economic rents, and it is a basic principle of tax policy that, unlike most other taxes, taxes that fall on economic rents do not cause economic distortion. Pillar One proposes a special tax regime for residual profits, a term that also suggests a claim to the virtue of taxing economic rents. In addition, in 2016 the US House Republicans flirted with the idea of DBCFT, the destination-based cash flow tax, proposed by Auerbach, Devereux, et al., a corporate tax designed to exempt the ‘normal’ return to capital, the risk-free rate of return.

Despite this interest, the concept of economic rent is not easy to grasp. Typical definitions, such as the extra return that a resource generates relative to its next-best use, or ‘inframarginal’ returns, offer little guidance on how to identify rents. And there is a further ambiguity: returns to capital in excess of normal returns, supernormal returns, also include returns to risk. Whether taxes that aim at economic rents or that seek to exempt normal returns also tax these risk premia is often not thoroughly explained.

In fact, there are intricacies to the concept of economic rent that are rarely discussed in the tax literature and, the relationship between economic rent and risk has a longer history than is often recalled. This paper explores these two elements to give new insight into the impact of taxes on the options for taxing returns in excess of the ‘normal’ risk-free return, and to the merits of innovations such as new windfall taxes and Pillar One.

This event is part of the LSE Taxation Seminars series, organised by Dr Eduardo Baistrocchi. These events are held on LSE campus, but a Zoom link will also be circulated in advance.

For further information, please contact Eduardo Baistrocchi


10 May
6:30 pm
Event Category:


Eduardo Baistrocchi


Thai Theatre
Lower ground floor, New Academic Building, LSE WC2A 3LJ United Kingdom + Google Map