Tax Competition: A Blessing
Tax «harmonization» or standardization is often presented as an alternative to the diversity of tax systems. This paper reviews the evidence and finds that the costs of «harmonization» could be unexpectedly high.
Fiscal competition is often presented as harmful and distortive. On the basis that low-tax jurisdictions are unfairly attracting capital from less fiscally benign jurisdictions, the European Union and other countries (including the United States), as well as several international organizations (such as OECD and IMF), are promoting policies aimed at preventing, or discouraging, the free flow of capital. This paper shows that the theoretical basis for this claim is unsound. Fiscal competition, in fact, is a powerful constraint on governments' natural tendency to grow. In a world without «tax havens», taxes and public spending in today's high-tax jurisdictions would likely be higher.
Read the paper: Tax Competition: A Curse or a Blessing? (20 pages, PDF)
The Center for Tax Competition wishes to acknowledge the kind permission of the Istituto Bruno Leoni, Torino, to make this paper available here.