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Adjusting national tax policy to economic internationalization: Strategies and outcomes

  • Ganghof, Steffen
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    Competitive pressures in corporate and personal income taxation have increased the marginal economic and political costs of taxation during the last 25 years. This contributed to the fact that since the mid-1980s, capital income and total tax revenues as well as public expenditures (all as percentage of GDP) of the 18 most advanced OECD countries have, on average, no longer shown a medium-term upward trend. However, contrary to widespread beliefs, the OECD-18 averages for these three variables do not show a downward trend, either. How can this medium-term stability of capital income tax revenues, total tax revenues and public expenditures be explained? On the basis of an investigation of the nature of adjustment pressures and strategies, the paper highlights two explanations. First, competitive pressures on the tax mix, the revenue mix, and the budget size have partly been offset by countervailing – domestic and international – pressures. Second, given strong budgetary constraints on general cuts in effective income tax rates, most governments have pursued three revenue-preserving adjustment strategies that take the precise nature of competitive pressures into account. Governments have pursued a policy of tax-cut-cum-base-broadening, differentiated their income tax treatment according to differences in competitive pressures, and combatted international tax avoidance and evasion with legal and administrative measures. These strategies have been successful in limiting revenue losses. However, increased (explicit) differentiation of income tax treatment does conflict with established principles of neutral and just taxation. Thus, competitive pressures have resulted, in part, in a changed and more controversial structure of taxation rather than large-scale revenue losses.

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    File URL: http://econstor.eu/bitstream/10419/43734/1/310433584.pdf
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    Paper provided by Max Planck Institute for the Study of Societies in its series MPIfG Discussion Paper with number 99/6.

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    Date of creation: 1999
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    Handle: RePEc:zbw:mpifgd:996
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    1. John B. Shoven & John Whalley, 1992. "Canada-U.S. Tax Comparisons," NBER Books, National Bureau of Economic Research, Inc, number shov92-1, April.
    2. Asea, Patrick & Mendoza, Enrique G & Milesi-Ferretti, Gian Maria, 1996. "On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture," CEPR Discussion Papers 1378, C.E.P.R. Discussion Papers.
    3. Alfons Weichenrieder, 1996. "Fighting international tax avoidance," Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 37-58, February.
    4. repec:cup:cbooks:9780521021807 is not listed on IDEAS
    5. Willi Leibfritz & John Thornton & Alexandra Bibbee, 1997. "Taxation and Economic Performance," OECD Economics Department Working Papers 176, OECD Publishing.
    6. M. Bordignon & S. Giannini & P. Panteghini, 1998. "Corporate Taxation in Italy: an Analysis of the 1998 Reform," Working Papers 328, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Günther G. Schulze & Heinrich W. Ursprung, 1999. "Globalisation of the Economy and the Nation State," The World Economy, Wiley Blackwell, vol. 22(3), pages 295-352, 05.
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