Globalization, technological developments, and the work of fiscal termites

"Some recent literature has pointed to the fragility of the countries' and especially of the OECD countries' tax systems in the face of deepening globalization and associated technological and institutional developments. See Tanzi (1995 and 1996). A potentially significant and negative impact of globalization on the economies of countries is likely to come through the tax systems. There is little quantitative evidence so far indicating that the tax systems of the industrial countries are collapsing. On the contrary, for many of these countries the level of taxation is at a historical high or close to it.2 However, in most countries in the 1990s, the tax level stopped growing and, in several, it actually declined. This behavior contrasts sharply with that of previous decades. Furthermore, some finance ministers have been complaining about the effect of tax competition on the revenue of their countries, and the OECD and the European Union have been concerned about various aspects of tax competition. Thus, quantitative evidence on the impact of globalization on tax revenue is still limited, but that evidence may not tell much about the future. The thesis for this paper is that as time passes, the impact of globalization on tax revenue is likely to accelerate and to become obvious in the revenue statistics of the countries."