Friday, January 18, 2008

International tax competition

This silly video clip by Daniel Mitchell argues the case for unregulated tax competition between nations. The idea is that the lowest rates of company and personal income tax are best so globalisation which forces high tax countries to cut their taxes to levels of low tax countries to avoid job and investment losses must necessarily be a good thing.

It might be but it also might not be. Countries with higher taxes might wish to address the provision of public goods adequately and may wish to pursue redistributive goals implicit in social welfare programs. It is simple arrogance to assert that all such programs are flawed.

It seems to be US intellectual imperialism at work again. Indeed Mitchell describes all European politicians as being to the left of US liberal democrats. Even if this was true - so what?

On the other hand it is not clear how countries can effectively combat tax competition through bans and through policies promoting tax harmonisation. The OECD have tried but been relatively unsuccessful. Thus one argument for tax competition is that it is difficult to do much about it. I still thing the video clip is silly however since it argues the case for international tax competition as an ethical mideal without considering possible implied policy costs.

Mitchell is a member of the Cato Institute and a strong supporter of not only tax competition but also flat taxes.


Spiros said...

There is something peculiar thing, in the local context, about those people who argue most loudly for low taxes because if we don't lower them to Hong Kong levels, all our skilled workers will go live elsewhere, like say Hong Kong, and no one will want to come here.

And that peculiar thing is, that those people have themselves chosen to migrate her. I am thinking of our good friend Sinclair Davidson and Peter Saunders from the CIS.

Obviously, our ruinously high taxes haven't stopped them from calling Australia home. Now, why would this be? Could it be that Australia is a good place to live, and despite their protestations, they actually appreciate the services that are provided by governments?

Anonymous said...

It did for me until I was forced to come home by my better 1/2 it also applies to a great deal Australians living overseas. Don't kid yourself , Spiro. There are great places to live even tax free. This will only become a bigger problem in the future. It got so big for the US that all citizens have to pay tax equalization if their taxes were lower than otherwise at the federal level..... otherwise the IRS will chase you down to the end of the earth.

Harry in case you missed it, Ireland has become one of the richest eareas in Euroipe as a result of it's attractive tax rates over the course of 25 years. This also applies to some of he former Sov satelites too.

Tax comepetition really does work.