What Regulatory Competition Can Teach About Tax Competition

Tax competition is usually portrayed as a competition over rates.

Critics argue that such competition leads inevitably to a “race to the bottom,” with the result of reducing tax rates and revenue everywhere. They also decry “secrecy” jurisdictions that allow owners of entities to conceal their identities, suggesting that the only reasons for confidentiality can be to cheat tax authorities somewhere out of their due.

But as anyone who has ever filled out a tax return knows, tax rates are just one facet of tax competition. Jurisdictions can compete over a wide range of tax system attributes – all the way from the complexity of the system to special provisions designed to advantage particular forms of investment to general depreciation rules.

Lower rates can attract taxpayers, but allowing more rapid depreciation of capital investment might trump lowering rates for capital-intensive industries, while an honest and efficient revenue agency may matter more than nominal rates for total revenue collections.

Read this article at Competing For Captives: What Regulatory Competition Can Teach About Tax Competition  by authors Dr. Andrew P. Morriss, Dean & Anthony G. Buzbee Dean’s Endowed Chairholder, Texas A&M University School of Law; and Drew Estes, a JD/MBA Candidate, Class of 2016, University of Alabama.