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Is neoliberalism still spreading? The impact of international cooperation on capital taxation

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  • Lukas Hakelberg
  • Thomas Rixen

Abstract

The downward trend in capital taxes since the 1980s has recently reversed for personal capital income. At the same time, it continued for corporate profits. Why have these tax rates diverged after a long period of parallel decline? We argue that the answer lies in different levels of change in the fights against tax evasion and tax avoidance. The fight against evasion by households progressed significantly since 2009, culminating in the multilateral adoption of automatic exchange of information (AEI). In contrast, international efforts against base erosion and profit shifting (BEPS) failed to curb tax avoidance by corporations. We theorize that international cooperation is an intervening variable, countering the negative impact of tax competition on capital taxation by reducing the risk of capital flight. Under such conditions, domestic political pressures in favor of higher capital taxes can unfold. We confirm our argument in a difference-in-difference analysis and through additional tests with data for up to 35 OECD countries from 2000–2017. Our central estimate suggests that the average tax rate on dividends in 2017 is 4.5 percentage points higher than it would have been absent international tax cooperation.

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  • Lukas Hakelberg & Thomas Rixen, 2021. "Is neoliberalism still spreading? The impact of international cooperation on capital taxation," Review of International Political Economy, Taylor & Francis Journals, vol. 28(5), pages 1142-1168, October.
    • Handle: RePEc:taf:rripxx:v:28:y:2021:i:5:p:1142-1168
    DOI: 10.1080/09692290.2020.1752769
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    Cited by:

    1. Paloma Péligry & Xavier Ragot, 2023. "Evolution of fiscal systems: Convergence or divergence?," Post-Print hal-04384035, HAL.
    2. Matti Ylönen & Ringa Raudla & Milan Babic, 2024. "From tax havens to cryptocurrencies: secrecy-seeking capital in the global economy," Review of International Political Economy, Taylor & Francis Journals, vol. 31(2), pages 563-588, March.

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