How tax competition harms developing countries

We are very grateful to Tax Analysts for permission to republish one of the most important historical articles about tax competition, a special supplement in their June 2004 edition authored by Mick Keen and Alejandro Simone, entitled Is Tax Competition Harming Developing Countries more than Developed? (Reprinted with permission of Tax Analysts. Copyright 2004.)

The answer from this paper, essentially, is that tax competition does harm developing countries more.

"What makes the apparent pressure on corporate tax revenues in developing countries especially troubling is that developing countries have traditionally relied more heavily on corporate tax revenues than have developed countries; at the start of the 1990s, they accounted for around 17 percent of tax revenue in developing countries, compared to 7 percent in developed. . . any erosion of the corporate tax in developing countries thus jeopardizes a convenient and much-needed tax handle."

Read the article for the full details.

Keen updated his work subsequently with two more recent pieces:

Revenue Mobilisation in Sub-Saharan Africa: Challenges from Globalisation I – Trade Reform, by Michael Keen and Mario Mansour

and

Revenue Mobilisation in Sub-Saharan Africa: Challenges from Globalisation II – Corporate Taxation, by Michael Keen and Mario Mansour, from August 2010∗

looking at things like tax holidays ("a particularly ill-designed form of investment incentive") and trends over time. These latter two are subscription-only articles, though this August 2009 IMF document by the same authors seems to be a synthesis of the two. Their conclusions about the impacts are less pessimistic than in the 2004 article, but the picture is muddied in particular by booming mineral exports in recent years, which have buoyed mineral tax revenues (and which also buoys sectors that are classed as "non-oil" or "non-mineral" resources, because oil booms also lead to booms in non-oil sectors such as construction.)

In any case, the purpose of this blog is not to discuss these reports in detail, but to provide a useful public resource for researchers looking into this absolutely crucial topic.

All the documents stress the incomplete and poor data sets available on developing countries - which means that much further research is required.