Democratic legitimacy, sovereignty, and international taxation

This chapter connects the literature on the value and purpose of democracy with that on international tax reform. There is much disagreement on both topics. Democracy is often considered to generate legitimacy, that coercive power is only legitimate if those subject to it have a democratic say. Democracy is often linked to sovereignty as well—the idea that the people or citizens of a territory are sovereign. When it comes to issues that affect non-citizens, such as border rules or international taxation policy, the two principles can come apart. This is because the laws set by one state will impact upon those outside their borders. This creates an apparent moral problem in the international realm. Democracy applies—if it does at all—at a national level, but tax policies impact on those who did not get a vote. The chapter considers this conflict between principles of democratic sovereignty and legitimacy on the international stage, and some possible responses. One radical conclusion, following from the “all affected principle”, is that a global democracy is required. An alternative is that the international tax regime can generate legitimacy without a global democratic process. This is presented as appealing, but it does generate some requirements on the international process and outcomes to meet a test of legitimacy. The historic leadership of the OECD on international taxation is challenged by this legitimacy requirement, and this seems to push towards a more inclusive approach to international taxation.