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Tax Competition March 1, 2009

Posted by federalist in Diplomacy, Economic Policy, Taxation.
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A few years ago I highlighted the importance of tax competition in restraining government and encouraging government efficiency.  The US and EU are waging a new war against “tax havens.”  Daniel Mitchell, who recently published Global Tax Revolution has also put a few videos advocating the preservation of tax competition on the Cato blog.

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1. federalist - May 18, 2009

Arthur Laffer and Stephen Moore offer this update on the impact of interstate tax competition.

2. federalist - May 20, 2009
3. federalist - May 28, 2009

An interesting question came up on the Independence Institute’s blog: Is it justifiable for companies to seek tax incentives to do business in a jurisdiction? Everyone there seems to think not. However, I disagree, as I wrote there:

There is no question that government interference in markets and commerce reduces their efficiency. But it is not clear based on the evidence you present that subsidies for Walmart worsen the situation.

Consider: Walmart is subject to enormous government interference that costs it money, from federal minimum wage and work rules to local permitting and taxes. If it uses its clout and economies of scale to secure government subsidies these are not necessarily “unproductive rents.” On net the government is probably still profiting from Walmart’s subsidized activities.

Small players that can’t exploit tax competition may envy Walmart, but in principle we might be better off even if only a few large players can engage in tax arbitrage.

Consider the following parable:

A highwayman sets up a “toll” on a major road and refuses to let anybody pass unless they pay him $1 per pound of cargo. He does not provide or maintain the road, but he does claim that this toll is a fair price for the “security” he provides travelers.

A large company that sends a lot of cargo along that road tells him, “Unless you reduce your toll on our cargo, we’re going to use a different road.” The highwayman agrees to reduce their toll to $.50/pound.

Assuming that nobody has the power to dislodge the highwayman: Would you rather that some travelers use their clout to reduce the toll he extorts, or would you say that nobody should secure preference and everyone should face the same level of extortion?

4. federalist - September 4, 2009

Daniel Mitchell of the Cato Institute covers tax competition extensively. Here’s his latest post on the subject.

5. federalist - April 20, 2014

Interstate economic competition: Gun Control Edition.


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