A race to the bottom? The politics of tax competition

How has globalization changed the tax state? Governments around the world have cut taxes in favor of capital owners and multinational corporations since the 1980s. Yet, it is debated whether globalization has brought about a race-to-the-bottom. While most governments have cut direct tax rates, this trend is not homogeneous and far from the predicted zero tax on capital. The goal of this chapter is to discuss first, what tax competition is and how it works. Second, it reviews the main contributions on tax competition from a political science perspective. A general consensus is that actors, institutions and the socio-economic context mitigate the race-to-the-bottom. However, the main focus has been on corporate income taxes, neglecting other types of taxes. The recent decline of wealth taxes suggests however, that political science needs to re-open the debate on the race-to-the-bottom hypothesis.