TY - JOUR

T1 - Room to Manoeuvre? International Financial Markets and the National Tax State

AU - Lierse, Hanna

AU - Seelkopf, Laura

PY - 2016/1/2

Y1 - 2016/1/2

N2 - Globalisation has triggered a downwards trend in direct taxation as governments compete for internationally mobile capital. This popular postulation has blurred the attention to potential upward constraints on tax policy-making emanating from globalised capital markets. In this paper, we illustrate when and how capital markets exert an upward pressure on taxes. While the increasing access to international capital allowed governments in developed democracies to indulge their voters with deficit-financed spending, the most recent crisis has shown that this is no panacea. When international loans become costly, governments have to revert to raising revenue domestically. Using comparative time-series data since the 1980s, we investigate how rising bond yields affect the number and the direction of tax reforms, as well as the tax mix in the OECD. The empirical analysis provides some evidence that international capital markets place an upward pressure on taxes, recently above all on consumption taxes. Yet, governments have also retained room to manoeuvre as a number of tax decisions are more dependent on domestic political factors than on pressure from the capital markets.

AB - Globalisation has triggered a downwards trend in direct taxation as governments compete for internationally mobile capital. This popular postulation has blurred the attention to potential upward constraints on tax policy-making emanating from globalised capital markets. In this paper, we illustrate when and how capital markets exert an upward pressure on taxes. While the increasing access to international capital allowed governments in developed democracies to indulge their voters with deficit-financed spending, the most recent crisis has shown that this is no panacea. When international loans become costly, governments have to revert to raising revenue domestically. Using comparative time-series data since the 1980s, we investigate how rising bond yields affect the number and the direction of tax reforms, as well as the tax mix in the OECD. The empirical analysis provides some evidence that international capital markets place an upward pressure on taxes, recently above all on consumption taxes. Yet, governments have also retained room to manoeuvre as a number of tax decisions are more dependent on domestic political factors than on pressure from the capital markets.

KW - financial markets

KW - globalization

KW - government bond yields

KW - redistribution

KW - taxation

KW - Sustainability sciences, Management & Economics

UR - http://www.scopus.com/inward/record.url?scp=84948386835&partnerID=8YFLogxK

U2 - 10.1080/13563467.2014.999761

DO - 10.1080/13563467.2014.999761

M3 - Journal articles

AN - SCOPUS:84948386835

VL - 21

SP - 145

EP - 165

JO - New Political Economy

JF - New Political Economy

SN - 1356-3467

IS - 1

ER -