 Room to Manoeuvre? International Financial Markets and the National Tax StateHanna Lierse and Laura Seelkopf New Political Economy, 2016, vol. 21, issue 1, 145-165 Abstract: Globalisation has triggered a downwards trend in direct taxation as governments compete for internationally mobile capital. This popular postulation has blurred the attention to potential upward constraints on tax policy-making emanating from globalised capital markets. In this paper, we illustrate when and how capital markets exert an upward pressure on taxes. While the increasing access to international capital allowed governments in developed democracies to indulge their voters with deficit-financed spending, the most recent crisis has shown that this is no panacea. When international loans become costly, governments have to revert to raising revenue domestically. Using comparative time-series data since the 1980s, we investigate how rising bond yields affect the number and the direction of tax reforms, as well as the tax mix in the OECD. The empirical analysis provides some evidence that international capital markets place an upward pressure on taxes, recently above all on consumption taxes. Yet, governments have also retained room to manoeuvre as a number of tax decisions are more dependent on domestic political factors than on pressure from the capital markets. Date: 2016 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:cnpexx:v:21:y:2016:i:1:p:145-165 Ordering information: This journal article can be ordered from DOI: 10.1080/13563467.2014.999761 Access Statistics for this article New Political Economy is currently edited by Professor Colin Hay More articles in New Political Economy from Taylor & Francis Journals |
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