The Tax Harmony Assumption

Taxation and tax policy reform appears on the political agenda in most advanced welfare states in Europe and North America. Of course studies of taxation and tax policy are nothing new and have existed ever since people have paid taxes. The current work is situated in the context of the future of the welfare state and the reinforced international economic and political integration referred to as “globalization. ” The purpose of this paper is to analyze how globalization is affecting tax policy in advanced welfare states. In comparing the evolution of tax policy in Canada with those in the United States, Germany and Sweden from 1960 to 1995, I will try to review the conventional antiglobalization thesis, i.e., that globalization leads to a “race to the bottom ” in revenue and expenditures policies, or as others have called it, a “beggar the neighbour policy ” (Tanzi and Bovenberg 1990, 187). There are at least four major functions of fiscal policy and taxation in the modern economy (Boskin 1978, 2). First, they direct the financing of government expenditures; second, they redistribute income of citizens; third, they serve to encourage or discourage certain activities; and fourth, they stabilize the overall economy. These functions of taxation are very important for the legitimacy and balance of modern welfare states. If we follow the conventional antiglobalization thesis, these functions are endangered under the present processes of reinforced international economic and financial integration. As well, the increase