Tax competition: Much to do about very little

In this paper I argue that the criticism of tax competition is overblown. The whole notion of \u27harmful\u27 tax competition itself is ill-defined. The OECD began its campaign against tax competition on the basis of assumed harm and has failed to demonstrate any such harm from competition between nations. In addition, I argue that most of the debate surrounding tax competition is ideological. Differing views on the ability and role of government and markets to affect outcomes and to redistribute income feed into preferences for and against tax competition. I investigate whether tax competition has actually had any impact on tax revenue raised by the OECD economies, or the mix of tax revenue within OECD economies. The data do not indicate that any ‘harmful’ tax competition has occurred. While corporate tax rates may have declined, there is no evidence to suggest that corporate tax revenue is especially at risk. Finally, I review the literature investigating the benefits from full scale cooperation and harmonisation of tax systems. The theoretical benefits are small—less than one per cent of GDP—and further these benefits are based on very restrictive assumptions. In other words, the benefits of tax harmonisation are very small and the costs of tax competition are small, too—indeed there is no evidence of any costs. The empirical literature, however, indicates economic benefits from tax competition. In other words, the whole tax competition debate has generated a lot of heat but very little light.&nbsp