Public Choice

, Volume 133, Issue 3–4, pp 321–341 | Cite as

Tax policies in a globalized world: Is it politics after all?

  • Antonis Adam
  • Pantelis Kammas


In a panel dataset of 17 OECD countries over 1970–1997, we provide empirical support for the joint existence of the efficiency and the compensation effects of globalization. Our regression analysis shows that higher economic integration—and the associated external risk—lead to a need for social security policies that require higher taxes. The latter take the form of larger social security contributions that are part of taxes on the immobile factors (labor). The tax burden on the relatively mobile factor (capital) is affected negatively by increased economic integration.


Globalization Tax competition Partisan politics 


H20 H77 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Ades, A. F., & Glaeser, E. L. (1999). Evidence on growth, increasing returns and the extent of the market. Quarterly Journal of Economics, 114, 1025–1046. CrossRefGoogle Scholar
  2. Alesina, A., & Spolaore, E. (2003). The size of nations. Cambridge: MIT. Google Scholar
  3. Alesina, A., Spolaore, E., & Wacziarg, R. (2000). Economic integration and political disintegration. American Economic Review, 90, 1276–1296. CrossRefGoogle Scholar
  4. Alesina, A., & Wacziarg, R. (1998). Openness, country size and government. Journal of Public Economics, 69, 305–321. CrossRefGoogle Scholar
  5. Beck, N., & Katz, J. N. (1995). What to do (and not to do) with time-series cross-section data. American Political Science Review, 89, 634–647 CrossRefGoogle Scholar
  6. Bretschger, L., & Hettich, F. (2002). Globalization, capital mobility and tax competition: theory and evidence for OECD countries. European Journal of Political Economy, 18, 695–716. CrossRefGoogle Scholar
  7. Bucovetsky, S. (1991). Asymmetric tax competition. Journal of Urban Economics, 30, 167–181. CrossRefGoogle Scholar
  8. Bucovetsky, S., & Wilson, J. D. (1991). Tax competition with two tax instruments. Regional Science and Urban Economics, 21, 333–350. CrossRefGoogle Scholar
  9. Cameron, D. R. (1978). The expansion of the public economy: A comparative study. American Political Science Review, 72, 1243–1261. CrossRefGoogle Scholar
  10. Cusack, T. R. (1997). Partisan politics and public finance: Changes in public spending in the industrialized democracies, 1955–1998. Public Choice, 91, 375–395. CrossRefGoogle Scholar
  11. Daveri, F., & Tabellini, G. (2000). Unemployment, growth and taxation in industrial countries. Economic Policy, 30, 47–88. CrossRefGoogle Scholar
  12. Devereux, M. P., Griffith, R., & Klemm, A. (2002). Corporate income tax reform and international tax competition. Economic Policy, 35, 449–488. CrossRefGoogle Scholar
  13. Devereux M. P., Griffith, R., & Klemm, A. (2004a). Why has the UK corporation tax raised so much revenue? Fiscal Studies, 25, 367–388. CrossRefGoogle Scholar
  14. Devereux, M. P., Lockwood, B., & Redoano, M. (2004b). Do countries compete over corporate tax rates? Warwick Economic Research Paper no. 642. Google Scholar
  15. Eggert, W., & Genser, B. (2004, forthcoming). Corporate tax harmonization in the EU: Status and perspectives. In Essays in honour of Theodoros Georgakopoulos. Google Scholar
  16. Frankel, J. A., & Romer, D. (1999). Does trade cause growth? American Economic Review, 89, 379–399. CrossRefGoogle Scholar
  17. Garrett, G. (1995). Capital mobility, trade and the domestic politics of economic policy. International Organisation, 49, 657–687. CrossRefGoogle Scholar
  18. Griffith, R., & Klemm, A. (2004). What has been the tax competition experience of the last 20 years? Tax Notes International, 34, 1299–1316. Google Scholar
  19. Haufler, A. (2001). Taxation in a global economy. Cambridge: Cambridge University Press. Google Scholar
  20. Hettich, W., & Winer, S. (1997). The political economy of taxation. In D. C. Mueller (Ed.), Perspectives in public choice (pp. 481–505). New York: Cambridge University Press. Google Scholar
  21. Katzenstein, P. (1985). Small states in world markets. Ithaca: Cornell University Press. Google Scholar
  22. Mendoza, E. G., Razin, A., & Tesar, L. (1994). Effective tax rates in macroeconomics: cross-country estimates of tax rates on factor income and consumption. Journal of Monetary Economics, 34, 447–461. CrossRefGoogle Scholar
  23. Oates, W. E. (1972). Fiscal federalism. New York: Harcourt Brace Jovanovitch. Google Scholar
  24. OECD (2003). International trade and competitiveness indicators. Vol. 2003, release 02. Google Scholar
  25. OECD (2004). Revenues statistics of OECD member countries. Vol. 2004, release 01. Google Scholar
  26. OECD (2005a). Economic outlook: annual and quarterly data. Vol. 2005, release 01. Google Scholar
  27. OECD (2005b). National accounts statistics: annual data main aggregates. Vol. 2005. Google Scholar
  28. Penn World Tables (2002). Available on-line in
  29. Perotti, R., & Kontopoulos, Y. (2002). Fragmented fiscal policy. Journal of Public Economics, 86, 191–222. CrossRefGoogle Scholar
  30. Quinn, D. (1997). The correlates of change in international financial regulation. American Political Science Review, 91, 531–551. CrossRefGoogle Scholar
  31. Rodrik, D. (1997). Has globalization gone too far? Washington: Institute for International Economics. Google Scholar
  32. Rodrik, D. (1998). Do more open economies have bigger governments? The Journal of Political Economy, 106, 997–1032. CrossRefGoogle Scholar
  33. Saunders, P., & Klau, F. (1985). The role of the public sector: Cause and consequences of the growth of government. OECD Economic Studies, No 4. Google Scholar
  34. Schulze, G. G., & Ursprung, H. R. (1999). Globalization of the economy and the nation state. The World Economy, 22, 295–352. CrossRefGoogle Scholar
  35. Shelton, C. (2005). The size and the composition of government expenditure. Mimeo Stanford University. Google Scholar
  36. Slemrod, J. (2004). Are corporate tax rates, or countries, converging? Journal of Public Economics, 88, 1169–1186. CrossRefGoogle Scholar
  37. Swank, D. (1997). Global markets, democratic institutions, and the public economy in advanced industrial societies. Mimeo Marquette University. Google Scholar
  38. Swank, D. (1998). Funding the welfare state: Globalisation and the taxation of business in advanced market economies. Political Studies, 46, 671–692. CrossRefGoogle Scholar
  39. Swank, D., & Steinmo, D. (2002). The new political economy of taxation in advanced capitalist democracies. American Journal of Political Science, 46, 642–655. CrossRefGoogle Scholar
  40. Volkerink, B., & de Haan, J. (2001). Tax ratios: A critical survey. OECD Tax Policy Studies, 1–80. Google Scholar
  41. Wacziarg, R. (2001). Measuring the dynamic gains from trade. World Bank Economic Review, 15, 393–429. CrossRefGoogle Scholar
  42. Wilson, J. D. (1986). A theory of interregional tax competition. Journal of Urban Economics, 19, 296–315. CrossRefGoogle Scholar
  43. Wilson, J. D. (1999). Theories of tax competition. National Tax Journal, 52, 269–304. Google Scholar
  44. Wilson, J. D., & Wildasin, D. E. (2004). Tax competition: Bane or boon. Journal of Public Economics, 88, 1065–1091. CrossRefGoogle Scholar
  45. Winner, H. (2005). Has tax competition emerged in OECD countries? Evidence from panel data. International Tax and Public Finance, 12, 667–687. CrossRefGoogle Scholar
  46. World Bank (2004). World bank development indicators, CD-ROM, Washington: World Bank Google Scholar
  47. Zodrow, G., & Mieszkowski, P. (1986). Pigou, Tiebout, property taxation, and the underprovision of local public goods. Journal of Urban Economics, 19, 356–370. CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, BV 2007

Authors and Affiliations

  1. 1.University of CyprusNicosiaCyprus
  2. 2.Athens University of Economics and BusinessAthensGreece
  3. 3.Department of International and European Economic StudiesAthens University of Economics and BusinessAthensGreece

Personalised recommendations