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Globalization and taxation: Theory and evidence

Priyaranjan Jha and Giray Gözgör

European Journal of Political Economy, 2019, vol. 59, issue C, 296-315

Abstract: We construct a theoretical model to capture the compensation and efficiency effects of globalization in a set up where the redistributive tax rate is chosen by the median voter. The model predicts that the two alternative modes of globalization- trade liberalization and financial openness- could potentially have different effects on taxation. We then provide some empirical evidence on the relationship between taxation and the alternative modes of globalization using a large cross-country panel data set. On average, globalization is associated with lower taxation but there is some evidence that in countries with high capital-labor ratio, globalization is associated with increased taxation. We make a distinction between de jure and de facto measures of globalization and find a strong negative relationship between taxation and de jure measures of globalization. The results for de facto measures of globalization are mixed.

Keywords: Trade liberalization; Capital market openness; Redistributive taxation; Median voter (search for similar items in EconPapers)
JEL-codes: F11 F21 F68 H11 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (15)

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Working Paper: Globalization and taxation: theory and evidence (2019) Downloads
Working Paper: Globalization and Taxation: Theory and Evidence (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:59:y:2019:i:c:p:296-315

DOI: 10.1016/j.ejpoleco.2019.04.001

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