Tax Coordination: The Importance of Institutions
by
David E. Wildasin
Martin School of Public Policy
and
Department of Economics
University of Kentucky
Lexington, KY 40506-0027
USA
Abstract
Can and should governments limit competition in the taxation of corporation
income, and if so, why and how? Explicit or implicit coordination in the
determination of tax rates and division of tax bases, while possible, is
difficult. Historical experience suggests that greater uniformity of
policies over space is more effectively achieved through the emergence of
new, higher-level institutions. Heckscher's analysis of the mercantilist
period illustrates the role of nation-states in the upward-reallocation of
policymaking authority from lower-level governments. More recently, the
taxation of corporation income by US states shows little indication of
explicit coordination; upward assignment (to the Federal government) of
principal authority for corporation income taxation has served as a far
more effective form of "cooperation by delegation" in the US. Modern
public finance views the corporation income tax primarily as a means
through which governments can achieve more comprehensive taxation of
individual income. The tax treatment of corporate income derived from
intangibles (patents, trademarks, etc.) exemplifies the challenges facing
policymakers at all levels of government -- from US states to OECD
countries. Who are the ultimate recipients of this income, and, from the
viewpoint of efficiency and equity, which jurisdiction(s) should have the
power to tax this income? Given the fluidity of business organizational
structures and ownership in internationally-integrated markets, what policy
options are feasible? These and similar issues can conceivably be resolved
through explicit policy coordation, through the development of new,
higher-level institutions, or both -- but this promises to be a
time-consuming, evolutionary process.
David E. Wildasin / dew@davidwildasin.us
