Funding the Welfare State: Globalization and the Taxation of Business in Advanced Market Economies

Abstract

Theorists assert that international capital mobility creates substantial pressure for all democratically elected governments to decrease tax burdens on business. I explicate and critique the general version of this theory and oer an alternative view. Empirically, I explore whether or not the globalization of capital markets has resulted in decreases in business social security, payroll, and pro®t taxes. I also investigate whether or not capital mobility has intensi®ed government responsiveness to domestic investment and pro®tability. Evidence suggests that business tax burdens have not been reduced in the face of rises in capital mobility nor is tax responsiveness to pro®tability and domestic investment intensi®ed by more open capital markets. To the contrary, analyses indicate that business taxation has become subject to neẁ market conforming' policy rules that developed in tandem with liberalization of markets. These new policy orientations reduce the economic management roles of business taxation while leaving the revenue-generating roles intact. In conclusion, I discuss the implications of the ®ndings for questions concerning the structural power of internationally mobile capital, redistributive policies, and the autonomy of democratically elected governments in a global economy.It has become commonplace to suggest that contemporary governments in the advanced capitalist democracies have converged around a neoliberal approach to economic management. The neoliberal pattern also appears to hold for tax policies: most governments have reduced marginal personal and corporate income tax rates and have generally reduced the redistributive roles of taxes. A widely oered explanation for these changes is the dramatic increase in the international mobility of capital. Numerous surveys of tax policy change and # Political Studies Association 1998. Published by Blackwell Publishers,

Taxation and democracy in the EU

“…These explanations state that, in the 1970s, policymakers had become increasingly dissatisfi ed with taxation systems that intervened in the structure of savings and investments and thus, in the 1980s, started to move toward more "market-conforming" systems by lowering statutory rates and broadening tax bases (Swank 1998;Steinmo 2003;Stewart/Webb 2006). These explanations are no challenge to the tax competition hypothesis because, even if "market conformity" is the goal, there are good reasons to maintain relatively high company tax rates on above-normal profi ts.…”

Power, Markets, and Top Income Shares

“…One good example of this possibility is globalization. The important role of union power and top marginal tax on the top 1% revealed in this article draws our attention to the literature on the impact of globalization on union density and taxation policy (Western 1998;Swank 1998;Brady, Beckfield, and Zhao 2007;Hays 2003;Scruggs and Lange 2002). To the extent that globalization erodes union power (for example through deindustrialization) and increases the pressure towards lowering top marginal taxes, globalization may have created a favorable "context" for the abovenoted self-reinforcing cycle of income, wealth, and power concentration in politics.…”

Adjusting National Tax Policy to Economic Internationalization Strategies and Outcomes

“…Die bisherigen Auswirkungen des Steuerwettbewerbs zeigen sich mithin zum Teil eher in umstrittenen Veränderungen der Struktur der Einkommensbesteuerung als in umfangreichen Einnahmeverlusten. Recent studies in political science have found that despite increased economic internationalization, neither capital (income) tax revenues, nor total tax revenue nor public expenditures in advanced OECD countries have shown an average downward trend, and that higher degrees of global market integration have not systematically translated into lower capital tax revenues, total tax revenues, or public expenditures (Garrett 1998a;1998b;1998c;Quinn 1997;Swank 1997). These results are striking.…”