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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. Dhammika Dharmapala, 2008. "What Problems and Opportunities are Created by Tax Havens?," Working Papers 0820, Oxford University Centre for Business Taxation.
  2. Giuseppe Carone & Jan Host Schmidt & Gaetan Nicodeme, 2007. "Tax revenues in the European Union: Recent trends and challenges ahead," European Economy - Economic Papers 280, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Dhammika Dharmapala & James R. Hines Jr., 2006. "Which Countries Become Tax Havens?," NBER Working Papers 12802, National Bureau of Economic Research, Inc.
  4. Troeger, Vera & Plumper, Thomas, 2012. "Tax Competition and Income Inequality: Why did the Welfare State Survive?," CAGE Online Working Paper Series 82, Competitive Advantage in the Global Economy (CAGE).
  5. 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.
  6. 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.

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