Some Observations Concerning Multijurisdictional Tax Competition
Files
Description
Should (or when should) separate governments, including sub-units in a federal system, be encouraged to engage in tax competition rather than harmonizing their tax systems? This is a very different question than, say, whether air pollution policy should emerge through regulatory competition or be harmonized at the national or multinational level. The differences suggest a need for lesser generalization in evaluating tax competition as compared to much other regulatory competition. The choice between principles of regulatory harmonization and competition presents a standard fiscal federalism question concerning the optimal scale of provision for public goods. Harmonization effectively creates a larger-scale decision maker in the subject area that is being harmonized, whether it is imposed by separate sovereigns’ agreement or by a higher-level unit of government in a federal system. But taxation, unlike clean air, is not a public good that might in principle have a scale of optimal provision. It is a way of paying for public good with varying scales of optimal and actual provision. Or, if we rely on official classifications, taxes are a subset of government rules identified by form, not economic content. Government rules can be used to advance a vast and overlapping array of allocative and distributional aims, whether officially called taxes, government spending, or regulation, and no one scale is generally best for pursuing all of the aims. It should therefore be clear that no particular scale for prescribing tax rules is correct across the board or from all standpoints. Accordingly, given a particular set of jurisdictions that must decide how to coordinate their tax rules, neither tax competitions nor harmonization is likely to be preferable across the board. Therefore, an overview of the kind offered here must start by considering the general issues raised by regulatory competition. We can then, after a brief tax policy review, consider how these issues play out in different tax settings.
Source Publication
Regulatory Competition and Economic Integration: Comparative Perspectives
Source Editors/Authors
Daniel C. Esty, Damien Geradin
Publication Date
2001
Recommended Citation
Shaviro, Daniel N., "Some Observations Concerning Multijurisdictional Tax Competition" (2001). Faculty Chapters. 1759.
https://gretchen.law.nyu.edu/fac-chapt/1759
