Tax And Globalization: Towards A New Social Contract

Tax competition unravels the social contract that has long bound people together within their nation states. The reason is straightforward: open economies undermine states’ ability to use their coercive power to tax in order to publicly provide certain goods and services and to ensure distributive justice. They thus lose their ability treat their constituents with equal concern and respect and coauthor their collective will, and in turn lose the legitimacy that justifies their coercive powers in the first instance.

Two features of the global tax regime drive this unraveling: mobility and fragmentation. Mobility allows people to relocate, which drives competition among jurisdictions offering bundles of goods and services for a tax ‘price’. Fragmentation allows people to engage with multiple jurisdictions simultaneously, mixing-and-matching the tax obligations they incur and the publicly provided goods and services they consume. Combined, mobility and fragmentation – for the few – significantly weaken national social contracts – for everyone else. 

The challenge for international taxation today is to establish a social contract appropriate to an era of mobility and fragmentation. Without rolling back the opportunities people enjoy under globalization, this new social contract must reinvigorate states’ ability to support their constituents’ collective self-determination.  The lecture will describe the challenges states face from mobility and fragmentation, and the necessary principles of a new social contract.