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What are the advantages and disadvantages of globalization?
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Globalization leads to reduced public revenues

The free movement of labour allows companies to easily relocate to tax havens.
Economics Globalisation Politics

Context

Globalization increases corporate mobility. This means companies are more responsive to tax hikes and increases. As a result, they prevent governments from raising tax revenues through corporation tax and seek out tax havens as a cost-cutting measure.

The Argument

In a hyper-globalized world, companies are highly mobile and easily able to uproot operations and relocate across international borders. This makes them highly sensitive to tax increases. If a company based in the UK believes it can make substantial tax savings by relocating operations to Ireland, there are very few mechanisms preventing it from doing so.[1] This mobility might prevent nations from introducing higher levels of corporate tax. Not wanting to risk an exodus of jobs and industries, governments might keep taxes on businesses very low, or introduce more regressive taxes like a value-added tax or a goods and services tax that place a larger burden on poorer demographics in an attempt to recover public revenue.

Counter arguments

Globalization does not decrease public revenue, it increases it. Globalization increases the average global income, bringing more money into the public coffers through income taxes. Prior to the first wave of globalization, global GDP per capita growth rates were marginal. Following the first wave of globalization, global GDP growth rates have soared. This directly translates to public revenue through corporation tax (however low), income tax, value-added tax, goods and services taxes, import taxes, property taxes etc.[2]

Proponents

Premises

[P1] Globalization increases corporate mobility. [P2] This makes corporations more sensitive to tax hikes. [P3] To avoid losing jobs, governments won't raise corporation tax and might, in some cases, lower it. [P4] This results in stagnating or declining public revenues.

Rejecting the premises

[Rejecting P3] Corporation tax is not the only way to increase public revenue. [Rejecting P4] Globalization increases GDP per capita, which means higher public revenues through other taxes.

References

  1. https://www.nber.org/papers/w14664
  2. https://ourworldindata.org/is-globalization-an-engine-of-economic-development
This page was last edited on Tuesday, 3 Nov 2020 at 15:57 UTC

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