Summers on Tax Competition
Larry is against it:
the US should take the lead in promoting global co-operation in the
international tax arena. There has been a race to the bottom in the taxation of
corporate income as nations lower their rates to entice business to issue more
debt and invest in their jurisdictions. Closely related is the problem of tax
havens that seek to lure wealthy citizens with promises that they can avoid
paying taxes altogether on large parts of their fortunes. It might be inevitable
that globalisation leads to some increases in inequality; it is not necessary
that it also compromise the possibility of progressive taxation.
This issue goes well beyond economics to questions of political economy and political philosophy. If you think it is the job of government to take from Peter to pay Paul, and if Peter can move around the globe, then you need international tax cooperation. Otherwise, some countries will become nations of Peters, leaving all the Pauls to fend for themselves.
On the other hand, if you think that the main job of government is to facilitate voluntary exchange by protecting property rights, rather than re-slicing the economic pie as it sees fit, then tax competition is a good check against excessive interventionism. In other words, are you more worried about too little government or too much?
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