Global income inequalities are met with increasing calls for direct supranational redistribution. This article argues that from the perspective of political feasibility, this approach should not be prioritised. We use the example of tax competition to show that supranational regulation that stops short of direct redistribution has better chances of being implemented. Moreover, as the case of tax competition illustrates, such regulation can help to shore up the capacity of nation states to redistribute internally, which indirectly tends to reduce global inequalities, too. Against this background, we formulate the conditional subsidiarity principle of redistribution. It states that when the case for direct supranational redistribution is built on the alleged incapacity of the state to redistribute due to the pressures of globalisation, our first instinct should be regulatory reform in order to restore this capacity. Finally, the article asks whether two prominent proposals for global taxation – the global resource dividend and the financial transaction tax – pass the test of the conditional subsidiarity principle.
Previous versions of this article were presented at the Centre for Advanced Studies “Justitia Amplificata” at the Goethe-Universität Frankfurt as well as at the workshop Global Tax Governance at the ECPR Joint Sessions at the Universität Mainz. Thank you to Gillian Brock, Kim Brooks, Barbara Buckinx, Allison Christians, Richard Eccleston, Rainer Forst, Stefan Gosepath, Mattias Iser, Lyne Latulippe, Miriam Ronzoni, Christian Schemmel, Peter Schwarz, Laura Seelkopf, Laurens van Apeldoorn, and Richard Woodward for their helpful comments. Thank you also to Gillian Brock, Tom Campbell, and Thomas Pogge for putting together this special issue on global taxation.
See e.g. Pogge, Thomas, “Growth Is Good! – But What Growth?” in Social Justice, Global Dynamics: Theoretical and Empirical Perspectives, ed. Ayelet Banai, Miriam Ronzoni and Christian Schimmel (London: Routledge, 2011), 77–94.
Milanovic, Branko, The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality (New York: Basic Books, 2011), chapter 2.
OECD, Divided We Stand: Why Inequality Keeps Rising (Paris: OECD, 2011).
Due to lack of space, we cannot discuss the reasons why globalization creates inequalities and undermines states’ redistributive capacities. For an entry point to the relevant literature, see e.g. ibid., chapter 2.
Musgrave, Richard A., and Peggy B. Musgrave, Public Finance in Theory and Practice (New York: McGraw-Hill, 1989).
Note that this allocative function includes the provision of the necessary legal infrastructure of markets (property rights, judicial review etc.), which can itself be understood as a public good. See North, Douglass C., Structure and Change in Economic History (New York: Norton, 1981).
For an overview, see Musgrave and Musgrave, Public Finance in Theory and Practice (Part V).
Olson, Mancur, “The Principle of ‘Fiscal Equivalence’: The Division of Responsibilities among Different Levels of Government”, American Economic Review, 59, 2 (1969): 479–87.
Oates, Wallace E., Fiscal Federalism (New York: Harcourt Brace Jovanovich, 1972).
This is not always true. For example, decisions about the level of governance at which health or education policies – and hence their funding through the tax system – should be situated are also dependent on normative premises. Against this background, the difference between the allocative and the redistributive context turns out to be one of degree. In the redistributive context, subsidiarity requires “thicker” normative premises, whereas in the allocative context it can rely on relatively “thin” ones.
For the idea that “subsidiarity is secondary to general principles of justice”, see also Gosepath, Stefan, “The Principle of Subsidiarity”, in Real World Justice, ed. Andreas Follesdal and Thomas Pogge (New York: Springer, 2005), 157–70, p. 170.
See e.g. Caney, Simon, Justice Beyond Borders: A Global Political Theory (Oxford: Oxford University Press, 2006).
See e.g. Vallentyne, Peter, “Left-Libertarianism: A Primer”, in Left-Libertarianism and Its Critics: The Contemporary Debate, ed. Peter Vallentyne and Hillel Steiner (Basingstoke: Palgrave, 2000), 1–20.
See e.g. Blake, Michael, “Distributive Justice, State Coercion, and Autonomy”, Philosophy and Public Affairs, 30, 3 (2001): 257–96.
See e.g. Sangiovanni, Andrea, “Global Justice, Reciprocity, and the State”, Philosophy & Public Affairs, 35, 1 (2007): 1–39.
For this distinction between different kinds of feasibility constraints, see section 4.2 of Gilabert, Pablo, From Global Poverty to Global Equality (Oxford: Oxford University Press, 2012).
Ibid., section 4.6.
Wilson, John D., and David E. Wildasin, “Capital Tax Competition: Bane or Boon”, Journal of Public Economics, 88, 6 (2004): 1065–91.
For a more detailed discussion of these issues, see e.g. Dietsch, Peter, and Thomas Rixen, “Tax Competition and Global Background Justice”, Journal of Political Philosophy, Article first published online: 23 April 2012, DOI: 10.1111/j.1467-9760.2012.00419.x, section I and Rixen, Thomas, The Political Economy of International Tax Governance (Basingstoke: Palgrave/Macmillan, 2008), chapters 4, 6 and 8.
OECD, Harmful Tax Competition: An Emerging Global Issue (Paris: OECD, 1998).
Tax Justice Network (TJN), “The Price of Offshore Revisited. New Estimates for Missing Global Private Wealth, Income, Inequality and Lost Taxes”, http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf (accessed 14 August 2012).
In fact, until recently tax havens were not even obliged to respond to requests for information. Following the financial crisis, the G 20 and OECD pressured tax havens to accept a new standard of information exchange where the requested state has to provide information, as long as the request is specific enough. See OECD, “Tax Transparency 2011. A Report on Progress”, 2011. http://www.oecd.org/tax/transparency/48981620.pdf (accessed 18 February 2014).
De Mooij, Ruud A., and Sjef Ederveen, “Corporate Tax Elasticities: A Reader’s Guide to Empirical Findings”, Oxford Review of Economic Policy, 24, 4 (2008): 680–97.
De Mooij and Ederveen, “Corporate Tax Elasticities: A Reader’s Guide to Empirical Findings”.
If all countries operated a credit system without deferral, then tax competition among source countries would be dampened, see e.g. Zodrow, George R., “Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies”, International Tax and Public Finance, 13 (2006): 269–94.
See OECD Tax Database at http://www.oecd.org/tax/tax-policy/tax-database.htm (accessed 18 February 2014).
Keen, Michael, and Alejandro Simone, “Is Tax Competition Harming Developing Countries More Than Developed?” Tax Notes International, 34, 28 June (2004): 1317–25.
Christian Aid, Death and Taxes: The True Toll of Tax Dodging (London, 2008), http://www.christianaid.org.uk/images/deathandtaxes.pdf (accessed 18 February 2014).
Loretz, Simon, “Corporate Taxation in the OECD in a Wider Context”, Oxford Review of Economic Policy, 24, 4 (2008): 639–60, Schwarz, Peter, “Does Capital Mobility Reduce the Corporate-Labor Tax Ratio?” Public Choice, 130, 3–4 (2007): 363–80, Ganghof, Steffen, and Philipp Genschel, “Taxation and Democracy in the EU”, Journal of European Public Policy, 15, 1 (2008): 58–77.
For an analysis of capital mobility in this light, see Eichengreen, Barry, “The Global Gamble on Financial Liberalization: Reflections on Capital Mobility, National Autonomy, and Social Justice”, Ethics & International Affairs, 13, 1 (1999): 205–26.
See Dietsch and Rixen, “Tax Competition and Global Background Justice”.
See Graetz, Michael J., Foundations of International Income Taxation (New York: Foundation Press, 2003), 400–35.
Both elements of the fiscal policy constraint – the strategic intention and the autonomy-reducing effect – are of equal importance. They have to be jointly satisfied for a case of luring to be considered illegitimate. Providing precise criteria to operationalise the fiscal policy constraint lies beyond the scope of this article and will require the collaboration of international tax lawyers. For more details on this issue, see Dietsch and Rixen, “Tax Competition and Global Background Justice”.
See http://www.irs.gov/uac/The-Tax-Gap (accessed 15 January 2012).
An anonymous referee for this article stated that he was “not convinced that a regulation of international tax competition will easily win the support of many countries.” We do not defend this claim. We argue that such regulation will more easily win the support of many countries than a scheme of direct redistribution between them.
See Section 3.1.
Pogge, Thomas, World Poverty and Human Rights (Cambridge: Polity Press, 2008), 202.
Ibid., p. 205.
Some commentators see a tension between Pogge’s earlier cosmopolitan egalitarianism and this minimalist position. See for instance Kelly, Erin I., and Lionel K. McPherson, “Non-Egalitarian Global Fairness”, in Thomas Pogge and His Critics, ed. Alison M. Jagger (Cambridge: Polity Press, 2010), 103–22.
Pogge, World Poverty and Human Rights, p. 203.
Ibid., pp. 210–14.
Ibid., p. 30.
Ibid., p. 211.
While the tax will presumably be levied on the extractive industries, part of the burden will be passed on to end consumers, and may also depress prices for the rights of exploitation that resource owners can charge. The exact incidence of the tax will depend on the elasticities of supply and demand.
See Wenar, Leif, “Clean Trade in Natural Resources”, Ethics & International Affairs, 25, 1 (2011): 27–39.
Tobin, James, “A Proposal for International Monetary Reform”, Eastern Economic Journal, 4, 3–4 (1978): 153–59, p. 158.
Ibid., p. 154.
Ibid., p. 155.
Wachtel, Howard, “Tobin and Other Global Taxes”, Review of International Political Economy, 7, 2 (2000): 335–52, p. 340.
Eichengreen, Barry, James Tobin, and Charles Wyplosz, “Two Cases for Sand in the Wheels of International Finance”, The Economic Journal, 105, 428 (1995): 162–72, p. 163.
See for instance Edwards, Sebastian, “How Effective Are Capital Controls?” NBER Working Paper No. 7413, November 1999 (1999).
Tobin, James, “A Currency Transactions Tax, Why and How”, Open Economics Review 7 (1996): 493–99, p. 493.
Ibid., p. 497.
This opens the door for political instrumentalisation of the grounds on which the FTT is defended, but this complication is bracketed here.
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