Der Wohlfahrtsstaat im Steuerwettbewerb

Philipp Genschel

No 00/5, MPIfG Working Paper from Max Planck Institute for the Study of Societies

Abstract: Does globalization undermine the fiscal basis of the welfare state? The conventional wisdom believes so: open borders invite tax competition, which in turn erodes the revenues from capital taxation. However, there is little evidence to support this view. The data show that revenues from capital taxation are fairly stable in OECD countries. Some observers conclude that globalization is not much of a challenge to the welfare state. In this paper, I argue that both positions suffer from the same deficiency: They ignore that globalization was not the only challenge that the welfare state had to deal with in the 1980s and 1990s. There was also slow growth, rampant unemployment, and high levels of precommitted spending. These problems prevent a race to the bottom and trap the welfare state in a pincer movement between external pressures to reduce the tax burden on capital on the one hand, and internal pressures to defend revenue levels and relieve the tax burden on labor on the other.

Date: 2000
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