Wibbels and Arce: Globalization, Taxation, and Burden-Shifting in Latin America

Wibbels, E, and M Arce. 2003. Globalization, Taxation, and Burden-Shifting in Latin America. International Organization 57, no. 01: 111-136.

This paper explores the relationship of taxation policy in Latin America and the possible effects of globalization. "The question becomes: If capital flows and deregulation cause burden-shifting, are governments that reform tax systems rewarded with greater flows? We hypothesize that capital flows do respond to tax policy, but that markets evaluate tax systems as a whole, not just capital's burden of taxation"

The rosy assessment of tax policies that come out of Europe cannot be generalized to the rest of the world. Short-term capital needs require clear signals of country intention to be generated. This having been said, it is not entirely a dire situation for all developing countries, and there is still national room for movement and adjustment.

"In sum, globalization seems to bring a mixed bag for policymakers; it brings a broad set of constraints onto the outlines of policy but provides room for policy choices therein. The most direct evidence of this flexibility is the fact that longer-term markets seem to be less interested in the relative share of taxes paid by capital than in how market friendly tax systems are as a whole. While net capital flows have not rewarded shifts to increase the burden of taxation on labor, these flows have rewarded market-oriented reforms of tax systems. Thus, national policy-makers can attract capital by streamlining tax codes, eliminating distortionary taxes on trade, or increasing the efficiency of existing taxes, rather than contributing to ongoing trends in inequality by eliminating progressive components of tax codes" (131-2).

Swank: Tax Policy in an Era of Internationalization

Swank, Duane. (2006). "Tax Policy in an Era of Internationalization: Explaining the Spread of Neoliberalism". International Organization, 60(04), 847-882.

This article examines the spread of neo-liberal tax policies throughout the world. “My central argument is that the highly visible 1980s market-conforming tax reform in the United States should be especially important in shaping subsequent tax policies in other polities” (847). “Specifically, I argue that (asymmetric) competition for mobile assets associated with US reforms significantly influences national policy choices in other polities” (848). However, this is mitigated by domestic constraints (cost of implementation verses benefit).

Swank then examines other possible causes of the diffusion of tax policy in many countries. He looks at coercion, emulation, learning, competition and the domestic constraints that mitigate these decisions. He argues that there are different kinds of competition that can take place, and that the diffusion of tax policy can be attributed to asymmetrical competition: the US decreased the tax burden on capital and placed it on labor and other countries had to follow suit in order to remain attractive to the needs of capital.

He also identifies an ideational shift that may help the spread of tax policies. “…a shift to the right at the mass and elite level should significantly increase3 the weight assigned potential benefits and diminish the costs associated with adoption of the US model” (857).

“On the question of diffusion, substantial theory, an abundance of qualitative evidence about the perceptions of national policymakers, and the results presented above indicate that competitive pressures under girded the diffusion of US reforms” (873).

Of interest: "While there is little question that tax poilcy has experienced structural change...the substantial capacity of governments to fund social protection and public goods provision in the capitalist democracies has not been diminished appraciably by the US-driven diffusion of neoliberalism" (876).