Rasmus Corlin Christensen Profile picture
Jun 26, 2018 15 tweets 5 min read Twitter logo Read on Twitter
Does globalization necessitate lower income tax rates?

A fascinating new @IMFnews paper looks at this exact question. THREAD:

1) The paper takes up a puzzle that has permeated much research on taxation in the 'globalization' era:

The increasingly free-flowing, transnational nature of capital

- vs. -

the largely national space of tax regulation and enforcement.
2) This contrast, it is generally argued, has meant countries lower their tax rates on mobile capital (corporations, rich people), engaging in 'tax competition' or 'the race to the bottom', or else that capital simply moves elsewhere.
3) In the 'local language', if you will, the elasticities of taxable income was said to increase with globalization, prompting the revenue-maximising tax rate to drop.
4) This paper tries to empirically test whether this proposition is, in fact, true.

It estimates tax elasticities of top income earners from 1981-2016 across 35 OECD countries.
5) In short, there doesn't seem to be a downward trend in top income earners' tax elasticity during the 'globalization' era.

In others words: In response to (higher) tax rates, rich people don't seem more likely to move their money elsewhere today than they were in the 1980s.
6) Now, we should certainly be cautious about universal inferences and interpretations of the results, but there is also some supporting evidence elsewhere.
7) First, recent research has shown that 'mobile' capital may not be as mobile as previously assumed. @cristobalyoung5's work is an excellent example. And there's critical studies on corporate income taxes, incl. work by @KClausing, which I discussed here: phdskat.org/2016/08/18/dis…
8) Second, in all likelihood these elasticities are actively being reconfigured (reduced) as a result of tax policy changes in the last decade.

#BEPS, FATCA, CRS, etc. - they all make it harder for capital to 'escape', thus "changing the equation":

9) So, what are the implications of these insights?

They hint, I think, at some very pertinent points about economics and politics:
10) First, if tax elasticities haven't risen but income tax rates have decreased, top tax rates may be far lower than they 'should'.

In fact, the authors estimate that EVERY SINGLE COUNTRY in the model are below the revenue-maximizing optimal tax rates.
11) Second, if top income tax rates have decreased beyond revenue-optimal levels, it's likely POLITICS has played a central role. The authors investigate:

Could it be because citizens prefer less redistribution today? Well.. WVS shows the exact opposite trend.
12) If not citizen preferences, then we could think of a range of other POLITICAL factors, such as:

- The structural power of elites and corporations (lobbying, policy power, etc.)
- The rise of inequality, exacerbating this structural power
13) It could also be about the political power of economists, favouring lower income rates, potentially based on arguable assumptions and models.

I'm sure you can think of other political factors, too.
14) The upshot, I think, is that we really need to understand the politics and the political economy of taxation (a homer comment, I know), because it's so important to these debates and to societies more broadly.


• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Rasmus Corlin Christensen

Rasmus Corlin Christensen Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @phdskat

May 17, 2018
Okay, here we go!

Some descriptive plots and observations from the new @IMFnews data of tax policy measures in 23 advanced and emerging economies over four decades (imf.org/~/media/Files/…):
(Two notes before we get into it:

1. These are mostly plots looking at longitudinal trends. Suggestions for alternative relationships to look at are very welcome. What's interesting to you?

2. Still honing my data viz skills, so plot design comments very welcome too.)
Okay, first: 1990s and early 2000s clearly had most tax reform activity (in raw numbers of measures) since 1970 - across the globe.
Read 18 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!


0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy


3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!