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Global Tax Governance: The Bullets Internationalists Must Bite – And Those They Must Not

Miriam Ronzoni

Abstract

Under conditions of high capital mobility, states are pressurised into various forms of tax competition to attract or retain capital and investors. When this occurs, the capacity of domestic institutions autonomously to generate fiscal policies is constrained. What exactly, if anything, is unjust about this phenomenon? This paper argues that tax competition puts particular pressure on internationalists, who must acknowledge that its occurrence makes our obligations of global justice more demanding, and that such obligations require supranational institutions in order to be discharged. However, to the extent that tax competition is unjust from an internationalist point of view, this is due to the specific harm it does to states. Thus, the paper makes three contributions to the literature: it shows that (1) tax competition has an impact on the demandingness of internationalist obligations of justice; (2) discharging such obligations commits internationalists to accept a higher level of supranational institutionalization than is currently acknowledged; yet (3) both the specific content of such obligations, and the kind of supranational regulation that is needed to discharge them, differ from those which cosmopolitans support. In sum, there are some cosmopolitan bullets which internationalists must bite, and others which they should continue to resist.

Acknowledgements

I am grateful to Peter Dietsch, Thomas Rixen, Christian Schemmel, Laura Valentini, the anonymous reviewers of Moral Philosophy and Politics, and the participants in the ECPR Joint Session on Global Tax Governance (Mainz, March 2014) for helpful feedback, and to Patrick Tomlin, Jacob Levy and David Rodin for feedback on the title of this paper.

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  1. 1

    As well as in a competition to offer attractive labour standards for capital, which is a problem worthy of separate discussion (see for instance Dahan et al., 2011).

  2. 2

    In doing so, I follow Rawls (1999), Sangiovanni (2007) and Risse (2012). Internationalists differ from more radical anti-cosmopolitans (see for instance Nagel 2005) who hold that the language of justice only pertains to the domestic realm.

  3. 3

    For a more general discussion of the underappreciated demandingness of internationalist accounts of global justice, see Ronzoni (2009) and (2012). Among other things, this paper aims at providing an application of this general view to the specific case of tax competition. In doing so, I follow Dietsch (2011b), Rixen (2011), and Dietsch and Rixen (2012).

  4. 4

    Thus, the argument put forward in this paper differs somewhat from the claim made in Rixen (2011). Rixen suggests that globalists (which I prefer to call cosmopolitans in this paper) and internationalists would converge on a similar (if not identical) assessment of tax competition. This paper, instead, suggests that interesting areas of divergence would persist.

  5. 5
  6. 6

    For non-technical presentations of this, see for instance Scharpf (1997); Avi-Yonah (2000); Wilson and Wildasin (2004).

  7. 7

    A tax haven is a jurisdiction where certain or all taxes are levied at a low rate or not at all; most tax havens subscribe to the principle of bank secrecy, which legally prevents banks from sharing account information with legal authorities unless in exceptional cases (thus preventing foreign jurisdictions from tracking tax evaders).

  8. 8

    Dietsch and Rixen, however, formulate a much narrower principle of fiscal policy constraint later on in the paper, when they define under what circumstances the domestic fiscal decisions of a state may be contested as impermissible by other states within the International Tax Organization which they propose to establish (2012: 13–16). Their suggestion is that only “policies that are formulated strategically and have a negative outcome […] should […] be prohibited” (16, emphasis in the original). This seems to indicate that not all harmful tax competition (according to their own definition of harm) may legitimately be regulated but only competition that is harmful and is ill-motivated.

  9. 9

    The characterization of the global justice debate as being split into cosmopolitan and internationalist approaches is a simplification, which I only maintain for the limited purposes of this paper. For instance, a number of intermediate approaches have been put forward in the literature in recent years (Cohen and Sabel (2006) and Valentini (2011) are but two particularly insightful examples). For an account of why a simple and stark dichotomy between cosmopolitans and anti-cosmopolitans within the global justice debate is both factually inaccurate and normatively counterproductive, see for instance Ronzoni (2013).

  10. 10

    The reason why we do, however, need not be the same for all internationalists: Different scholars might disagree as to the fundamental reasons why inequalities among individuals only matter within the borders of a single polity. See, for instance, Blake (2005); Miller (2007); and Sangiovanni (2007).

  11. 11

    Why exactly being together in this project matters so much is, again, a question to which different internationalists answer differently (Rawls 1999; Blake 2005; Miller 2007; Sangiovanni 2007; Risse 2012) and an issue which I cannot explore here. What concerns me here is that, if one is committed to the idea that it matters, one should be concerned by the external obstacles to the possibility of domestic justice – and that harmful tax competition is one such obstacle.

  12. 12

    For many non-cosmopolitans, there exist also inter-individual global obligations of a roughly sufficientarian nature, such as the duty to make sure that human rights are universally enjoyed and to make sure that all individuals around the globe have the means to lead a minimally decent life (Blake 2005; Miller 2007; Sangiovanni 2007).

  13. 13

    For a fairly demanding account of what sovereign polities owe to one another, see Dietsch (2011).

  14. 14

    The duty of assistance, according to Rawls, only applies when societies “lack the political and cultural traditions, the human capital and know-how, and, often, the material and technological resources needed to be well-ordered” (1999: 106).

  15. 15

    The latter point is often justified by reference to state sovereignty: since states are sovereign entities, their compulsion is impermissible, and duties of justice that apply to them can therefore only be understood as rules of conduct. For an attempt to illustrate how state sovereignty may be made compatible with the existence of supranational institutions with enforcement powers, see Ronzoni (2012).

  16. 16

    This does not mean that, within an internationalist paradigm, states are responsible for the internal justice of other states. What they are responsible for is, rather, guaranteeing that all polities, by enjoying sufficiently favourable conditions for internal self-determination, be capable to be or become just. States and their citizens, then, have the responsibility to make good of such conditions – and if they do not, this is a problem of domestic, rather than international, justice.

  17. 17

    Determining where such a level lies exactly is beyond the scope of this paper. However, meaningful claims about the demandingness of international duties in a world economy characterised by tax competition – as well as about the kind of institutional responses that the discharge of such duties would need – can be made without establishing that level in a precise manner (a rough measure is provided, however, by aspects a-c of fiscal self-determination as defined in Section 2).

  18. 18

    If tax competition had an equalizing effect, cosmopolitans would have at least a pro tanto reason to endorse it, even if it still had a negative impact on the fiscal self-determination of polities.

  19. 19

    I here use the term “fiscal institutions” in a narrow sense, namely as institutions with the specific authority to levy taxes – rather than institutions whose competence is in the area of taxation more broadly conceived (such as institutions with the authority to sanction specific forms of fiscal behaviour).

  20. 20

    In so doing, I differ from Rixen (2011), who advocates one specific reform (Unitary Taxation with Formula Apportionment (UT + FA), 458–461) in that I suggest that, from an internationalist perspective, tackling tax competition requires a plurality of institutional strategies. Partly drawing on Rixen (2011), Dietsch and Rixen (2012) advocate the establishment of an International Tax Organization (the ITO) to tackle harmful tax competition and implement UT + FA. An institution like the ITO might also constitute the right kind of forum to spell out the plural strategy sketched here. Its advocates, however, conceive of it as a means to implement UT + FA in particular. Moreover, the ITO is explicitly modelled after the WTO with regard to its structure and modus operandi. Whether this would be appropriate for the tripartite strategy sketched in this section remains open.

  21. 21

    Revenues, then, could be distributed back to states according to some appropriate criterion.

  22. 22

    In Rawls’s framework, which constitutes the paradigm for internationalists, burdened societies are those which “lack the political and cultural traditions, the human capital and know-how, and, often, the material and technological resources needed to be well-ordered” (1999: 106). Therefore, other polities are under a duty of assistance to bring those to societies to a “threshold” which will allow them to enjoy the “essentials of political autonomy” (1999: 118).

  23. 23

    There might be, however, proposals for countering the resource curse that are even more congenial with internationalism, in that they do not require global taxation and redistribution of any kind (see for instance Wenar, 2008).

  24. 24

    For an overview of different proposals in this respect (including proposals other than a carbon tax) see Gardiner et al. (2010).

Published Online: 2014-4-29
Published in Print: 2014-5-1

©2014 by Walter de Gruyter Berlin / Boston