Part 1 - AL-Tax

International Taxation Handbookinto the academic literature on international taxation competitiveness to gaininsights into optimal tax policy. The number of variables in play is forcing thisincreased sophistication. At one time, the policymaker could hold hostage theircapital stock, exchange rate, and especially their labor force. Now, however, eventhe productivity of labor easily crosses borders in the Internet era of call-center outsourcing.The virtual worker can be located anywhere, which creates challenges forthe taxation policymaker.In the chapter entitled ‘Summary, Description, and Extensions of the CapitalIncome Effective Tax Rate Literature’, Professors Fernando M.M. Ruiz and MarcelGérard assist us in the theoretical discussion of tax harmonization through theiranalysis of effective tax rates. They make a distinction important in internationaltax planning by differentiating between marginal and average tax rates in environmentswith technological progress, uncertainty, and competitive pressures.Their important conclusions regarding the endogeneity of effective tax rateson international variables is a point particularly relevant for international taxpolicymakers.In a chapter entitled ‘Empirical Models of International Capital-tax Competition’,Professors Robert J. Franzese Jr and Jude C. Hays also model the inter-relationshipbetween domestic and global politics and international tax competition. They createfor us a foundation within which to evaluate international tax policy from a policymaker’sperspective. The goal of any tax policy should be the enhancement of thesocial welfare of the citizenry. Concepts of tax burden and efficiency must inevitablybe used to validate the myriad tax regimes and their effects on international tradeand capital movements. Nations are now coming to realize the strategic interdependencein their tax policymaking. This chapter makes a valuable contribution tothat discussion. The authors point out some surprising implications about tax burdensthat frustrate rather than further the goals of tax policymakers.Professor Gwenaël Piaser continues this line of discussion in the chapter entitled‘Labor Mobility and Income Tax Competition’. The author also stresses the criticalnature of our assumptions of mobility of capital, goods and services, and labor.This chapter streamlines the analysis by considering a two-country model that,while in the abstract, nonetheless nicely parallels the success of some countries,most notably Ireland, in increasing its mix of skilled workers and hence its taxrevenue by decreasing its tax rate. This chapter also provides a nice theoreticalfoundation for some of the experiments currently being considered in the newEastern European EU members.We next follow up this theoretical discussion with a number of policy-orientedchapters devoted to optimal international tax policy in practice. The example of6