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Will Social Welfare Expenditures Survive Tax Competition?

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  • James R. Hines

Abstract

Increasing economic openness creates demands for social welfare programmes designed to cushion the impact of economic changes, but may also encourage governments to reduce tax rates to attract mobile economic resources. Competitive tax reductions could then prevent governments from being able to finance significant welfare spending. Alternatively, economic globalization might improve the ability of governments to afford social welfare programmes--and several considerations point in this direction. First, taxes on internationally mobile activity represent only small fractions of total revenue collections; personal income taxes, value-added taxes, and social insurance contributions finance most social welfare spending. Second, international competition need not reduce taxes, and indeed, over the past 25 years, corporate tax collections have remained high as fractions of GDP and total taxes. Third, the vitality of a country's economy largely determines its level of social spending. To the extent that incomes rise as a result, greater economic openness should strengthen provision of social welfare. Copyright 2006, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 22 (2006)
Issue (Month): 3 (Autumn)
Pages: 330-348

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Handle: RePEc:oup:oxford:v:22:y:2006:i:3:p:330-348

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Web page: http://oxrep.oupjournals.org/

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Cited by:
  1. Neumann, Rebecca & Holman, Jill & Alm, James, 2009. "Globalization and tax policy," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 193-211, August.
  2. Marcin Piatkowski & Mariusz Jarmuzek, 2008. "Zero Corporate Income Tax in Moldova: Tax Competition and Its Implications for Eastern Europe," IMF Working Papers 08/203, International Monetary Fund.
  3. Chu, Hsun & Lai, Ching-Chong & Cheng, Chu-Chuan, 2013. "Tax Havens, Growth, and Welfare," MPRA Paper 52878, University Library of Munich, Germany, revised Sep 2013.
  4. Dhammika Dharmapala & James R. Hines Jr., 2006. "Which Countries Become Tax Havens?," NBER Working Papers 12802, National Bureau of Economic Research, Inc.
  5. Carone, Giuseppe & Nicodème, Gaëtan & Schmidt, Jan, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," MPRA Paper 3996, University Library of Munich, Germany.
  6. Dhammika Dharmapala, 2008. "What problems and opportunities are created by tax havens?," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 661-679, winter.
  7. Michaël Zemmour, 2012. "Tax competition and the move from insurance to assistance," Documents de travail du Centre d'Economie de la Sorbonne 12090, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  8. Troeger, Vera, 2012. "Monetary Policy Flixibility in floating Exchange Rate Regimes: Currency Denomination and Import Shares," CAGE Online Working Paper Series 82, Competitive Advantage in the Global Economy (CAGE).
  9. Chu, Hsun, 2013. "Tax Enforcement Policy and the Provision of Public Goods with the Presence of Tax Havens," MPRA Paper 53021, University Library of Munich, Germany, revised Nov 2013.

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