TY - JOUR

T1 - Is neoliberalism still spreading? The impact of international cooperation on capital taxation

AU - Hakelberg, Lukas

AU - Rixen, Thomas

N1 - Funding Information: This work was supported by the European Union’s Horizon 2020 research and innovation programme 2014–2018 under grant number 727145 ‘Combatting Fiscal Fraud and Empowering Regulators’ (COFFERS). Leo Ahrens, Fulya Apaydin, Frank Bandau, Benjamin Braun, Benjamin Faude, Valeska Gerstung, Leonard Geyer, Matthias vom Hau, Steffen Hurka, Friederike Kelle, Christoph Knill, Simon Linder, Daniel Mertens, Richard Murphy, Sol Picciotto, Nils Redeker, Max Schaub, Yves Steinebach, Alexandros Tokhi, Frank Borge Wietzke, Michael Zürn and other participants at the ECPR General Conference in Oslo 2017, the IBEI Research Seminar and Workshop ‘Policy-Making in Hard Times’ in Barcelona in 2017, the Conference of the German Political Science Association’s (DVPW) Political Economy Section in Darmstadt 2018, the Tax Justice Network’s Annual Conference 2018 in Lima and the Global Governance Colloquium at the Social Science Research Center Berlin (WZB) in May 2019 as well as three anonymous reviewers provided very helpful comments and suggestions. We thank all of them. Publisher Copyright: © 2020 Informa UK Limited, trading as Taylor & Francis Group.

PY - 2021

Y1 - 2021

N2 - The downward trend in capital taxes since the 1980s has recently reversed for personal capital income. At the same time, it continued for corporate profits. Why have these tax rates diverged after a long period of parallel decline? We argue that the answer lies in different levels of change in the fights against tax evasion and tax avoidance. The fight against evasion by households progressed significantly since 2009, culminating in the multilateral adoption of automatic exchange of information (AEI). In contrast, international efforts against base erosion and profit shifting (BEPS) failed to curb tax avoidance by corporations. We theorize that international cooperation is an intervening variable, countering the negative impact of tax competition on capital taxation by reducing the risk of capital flight. Under such conditions, domestic political pressures in favor of higher capital taxes can unfold. We confirm our argument in a difference-in-difference analysis and through additional tests with data for up to 35 OECD countries from 2000–2017. Our central estimate suggests that the average tax rate on dividends in 2017 is 4.5 percentage points higher than it would have been absent international tax cooperation.

AB - The downward trend in capital taxes since the 1980s has recently reversed for personal capital income. At the same time, it continued for corporate profits. Why have these tax rates diverged after a long period of parallel decline? We argue that the answer lies in different levels of change in the fights against tax evasion and tax avoidance. The fight against evasion by households progressed significantly since 2009, culminating in the multilateral adoption of automatic exchange of information (AEI). In contrast, international efforts against base erosion and profit shifting (BEPS) failed to curb tax avoidance by corporations. We theorize that international cooperation is an intervening variable, countering the negative impact of tax competition on capital taxation by reducing the risk of capital flight. Under such conditions, domestic political pressures in favor of higher capital taxes can unfold. We confirm our argument in a difference-in-difference analysis and through additional tests with data for up to 35 OECD countries from 2000–2017. Our central estimate suggests that the average tax rate on dividends in 2017 is 4.5 percentage points higher than it would have been absent international tax cooperation.

KW - Automatic Exchange of Taxpayer Information

KW - Capital Taxation

KW - Globalization

KW - International Cooperation

KW - Tax Evasion and Avoidance

KW - Politics

UR - http://www.scopus.com/inward/record.url?scp=85084154376&partnerID=8YFLogxK

U2 - 10.1080/09692290.2020.1752769

DO - 10.1080/09692290.2020.1752769

M3 - Journal articles

AN - SCOPUS:85084154376

VL - 28

SP - 1142

EP - 1168

JO - Review of International Political Economy

JF - Review of International Political Economy

SN - 0969-2290

IS - 5

ER -