Tax Competition

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  • A competitive fiscal policy that encourages capital inflows and discourages capital outflows by reducing the amount of taxes on a taxable resource. Tax competition is particularly useful for long-term capital investment or movement. High levels of taxation contribute to tax evasion and the exodus of taxable resource to areas of lighter tax burden.

    During the interwar years, some nations adopted a policy of competitive devaluation to promote exports and trade surpluses. Contemporary regulation of international trade and capital flows inveighs against unfair protective policies. Reduction in trade restrictions and economic integration (globalization) are inducing governments to be more responsive to the freer flow of economic resources and goods in order to capture the advantages of trade and factor movements.

    Since taxes are a lucrative source of ...

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