Tax competition and tax base equalization in the presence of multiple tax instruments

The literature on tax competition has argued that tax base equalization, which reduces regional disparities in tax bases, can serve as a means of internalizing horizontal and vertical fiscal externalities. This argument assumes that each government relies on a single tax base (a regional tax on mobile capital and a federal tax on savings). This paper considers the case in which a distortionary labor tax is also available. Internalizing fiscal externalities requires that while the regional capital tax base is fully equalized, a region’s equalization entitlement for the labor tax is positive when its tax base is “larger” than the average tax base of all regions. This efficient tax base equalization system is incompatible with the primary objective of fiscal equalization.

Tax Competition between Symmetric Countries for Large Asymmetric Investors

In a dynamic two-period game between two symmetric countries, we show that a unique subgame-perfect equilibrium arises during the initial stage of the game. A mixed taxation regime arises in the equilibrium where one country adopts a non-preferential taxation regime while its competitor adopts a preferential taxation regime. The country with a non-preferential taxation regime earns a higher tax revenue compared to the country with a preferential taxation regime. A tax holiday does not arise during the initial stage of the game when the size of the mobile capital base that enters during the later stage is considerably larger than the size of the mobile capital base that enters the economy during the initial stage. We provide the complete characterization and proof of the uniqueness of the mixed strategy Nash equilibrium.JEL classification: F21, H21, H25, H87

Abolition of Exchange Controls

This chapter explores the abolition of exchange controls, which transformed the British economy by ushering in a new era of mobile capital flows. Following the IMF’s 1976 bailout of the UK and the advent of North Sea oil, sterling began to appreciate precipitously. While this helped to discipline the British economy and reduce inflation, it also pushed British exporters to the brink of collapse. Governments during this period thus faced a choice between embracing the strong pound to tackle inflation and combating the pound’s rise in order to maintain political legitimacy. The governments of both Callaghan and Thatcher sought to navigate carefully between these two options. By getting rid of exchange controls, these governments hoped that investment would flow out of Britain, causing a moderate fall in the price of sterling. This would make Britain’s exports more competitive without generating a spike in inflation that would likely result from an overt sterling devaluation. The Callaghan administration was held back from totally abolishing controls by a resistant trade union movement. Thatcher, however, was able to fully scrap these controls due to the historic defeat of the trade unions in the 1979 Winter of Discontent. In addition, Thatcher sought to reassure global financial markets that this policy was not an attempt to lower sterling’s value, but was rather driven by a genuine faith in laissez-faire principles. The abolition of exchange controls should thus be understood as a palliative strategy to protect governing legitimacy by providing temporary relief to Britain’s export sector.

Documenting the Everyday Hidden Resistance of Ride-Hailing Platform Drivers to Algorithmic Management in Lagos, Nigeria

Ride-hailing platforms such as Uber, an integral component in the global platform economy, are not only facilitating fluidity and so-called autonomy of labor; they are also creating an unfair working environment for workers. This phenomenon indicates the strength of a highly temporal and mobile capital, pitted against workers not just in Lagos but around the world. This article adopts James Scott’s notion of everyday resistance in exposing some of the hidden practices of platform drivers in Lagos. It finds that sabotaging and falsely complying through manipulating algorithms and gaming spaces for rewards are facilitated by social media and communication networks, are deliberate, hidden practices to subvert algorithmic control. While Lagos is a unique case in the global South, examples from global North cities highlight some peculiarity. A robust qualitative methodology was conducted comprising semistructured interviews, focus group discussions, and participant observations from forty Uber and Bolt trips. Other primary data sources include driver forums, attending driver training sessions and listening to transport radio programs. This article identifies temporal and spatial dynamics in recognizing everyday hidden practices as not always hidden, but dispersed and inconsistent because of the mutual learning capabilities between platform drivers and algorithmic managers. The hidden transcripts of platform drivers delve into public realms and back following, enabling platform drivers to develop new hidden practices, typifying a continuous power struggle in Lagos.

Capital Taxation and International Cooperation

This chapter addresses the causes and consequences of automatic cross-border exchange of taxpayer information (AEI). First, we argue that the introduction of AEI was enabled by the willingness of the United States to exert its superior economic power. Second, we find that AEI leads to shifts of international investment out of tax havens, while at the same time very sophisticated tax evaders have been able to use loopholes in the AEI regime. Third, we focus on the impact of AEI on domestic tax policies and show that AEI removes the pressure of international tax competition and enables governments to increase taxes on internationally mobile capital. International cooperation in the form of AEI increases the domestic policy space of governments under conditions of economic globalization and may enable a return to more progressive tax systems and a reversion of the trend of rising income and wealth inequality.

Small-town sustainable development opportunities

The notion of sustainable development in a line with local economic development emerged in the seventies of the 20th century when local authorities in the western countries realized that their local communities had begun abandoning mobile capital, which resulted in limiting their economic potentials and opportunities for citizens' employment. This necessitated both a detailed study of the local economic potentials, the determination of best ways to use, maintain and develop them, and a thorough examination of the impediments to the local community's economic development. Local economic development is also seen as a process of certain changes, where, in the competition for the market, economic and country dominance, local governments, despite their status as the lowest level of public administration, are recognized as competitors in the market and, in collaboration with the economic sector, try to be more innovative and more competitive among them.

Let it float: Inflation and states’ priority on monetary independence over exchange rate stability

Monetary policy autonomy and exchange rate stability are desirable macroeconomic policies that cannot be attained jointly under internationally mobile capital. In this article, I explore what happens to state choices between the two policies when a key domestic economic challenge rises. Among many factors, increasing inflation directly affects citizens’ daily lives through rising living costs and decreasing purchasing power. Because dissatisfied citizens become more likely to threaten leaders’ tenure in both democracies and nondemocracies, I argue that leaders will pay closer attention to domestically oriented citizens’ interest rather than that of internationally/export-oriented actors when the inflation rate increases. In other words, to effectively tackle inflation and appease citizens’ discontent, leaders will prioritize their ability to utilize monetary policy over stable exchange rates that promote international trade and investment. As a result, states become more likely to relax exchange rates as the inflation rate increases. Interestingly, empirical results indicate stronger support for hypotheses regarding nondemocratic states.

An Environmental Race to the Bottom? “No More Stringent” Laws in the American States

Many American states have adopted laws designed to prevent environmental agencies from regulating pollution emissions more stringently than is required by federal statute. This study leverages variation in the timing and breadth of state adoption of these “No More Stringent” (NMS) laws to examine the claim that interstate competition for mobile capital leads state governments to relax regulatory standards, resulting in an environmental race to the bottom. The results indicate that the diffusion of NMS laws is driven by two forms of interstate economic competition, a policy competition effect that operates primarily among contiguous neighbors and a cost competition effect that operates primarily among a broader set of economic peers. These findings provide new empirical support for the environmental race to the bottom argument, and suggest new challenges for the use of cooperative federalism arrangements that involve state implementation of federal programs.