Australasian Political Studies Association Conference 2003
Hosted by the School of Government
University of Tasmania

Political Economy Stream

Globalisation and the dilemmas of capital taxation in Australia

Richard Eccleston
School of Politics and Public Policy
Griffith University
&
Steffen Ganghof
Max Planck Institute for the Study of Societies (MPIfG)
Cologne

Abstract:

The past decade has witnessed considerable debate concerning the impact of globalisation on the domestic economic policy of nation states. Nowhere has this been more apparent than in relation to capital taxation. Orthodox accounts of globalisation predicted that increasing levels of international trade, investment and capital transfer would force national governments to compete for footloose investment. In the absence of policy coordination the anticipated endpoint of this process in relation to capital taxation would be a ‘race to the bottom’ undermining the corporate tax base of nation states across the global economy. Despite these predictions, the first generation of empirical studies exploring the impact of globalisation on capital taxation has produced mixed results. While there is a strong consensus that there have been significant reductions in statutory corporate tax rates over the past two decades, examination of the effective taxation burden on the corporate sector has been remarkably stable. What appears to have occurred almost universally is that reductions in statutory corporate tax rates have been funded by broadening the corporate tax base through the elimination numerous investment incentives, depreciation allowances and the like. In short, at an aggregate level, globalisation has not enabled the corporate sector to abrogate its tax paying responsibilities. Does this necessarily mean that the processes of globalisation that have transformed the international political economy in recent years has had a negligible impact on corporate tax policy? The following article sheds light on this question by providing detailed analysis of the impact of globalisation and tax competition on Australian capital taxation.