draining development.pdf - Khazar University

274 Draining Development?A comparison of jurisdictions with high and low state spending in proportionto GDP shows an even more marked contrast. Quite surprisingly,by 2008, the jurisdictions with high state spending (in excess of 30 percentin proportion to GDP) were offering lower notional corporate tax ratesthan jurisdictions with a lower (under 30 percent) proportion of GDPgoing to state spending. The implications of the change would appearclear: this is the consequence of a shift in the tax burden in high-spendingjurisdictions from corporations to individuals that was rapid and marked.These findings are significant. They confirm what other literature (ofwhich there is a considerable body) has also shown, that is, that corporatetax rates are steadily falling. However, unlike most surveys of suchrates, which are concentrated most often solely on EU or OECD countries,these data show that the issue of changing corporate tax rates ismore complex than one may suspect at first sight. 9 There are strong differencesin the trends that a simple analysis does not reveal.Even so, the analysis noted here does not show the whole picture withregard to notional tax rates because a simple averaging methodology hasbeen used to present the data. This means that the tax rates surveyedhave been totaled over the set of jurisdictions and divided by the numberof jurisdictions within the set. This standard methodology is flawed. Toassume that all jurisdictions stand equal in the assessment of changes inaverage tax rates is inappropriate: it would seem that weighting shouldbe an essential part of any analysis.There are a number of ways to weight these data. The usual method issimply to attribute an equal weight to each jurisdiction. This would bemisleading. The method gives an undue emphasis to the tax rates ofsmall economies with limited populations. Because such economies arefrequently associated with secrecy jurisdiction activity, there is an obviousrisk of inherent bias. It is precisely for this reason that an alternativeweighting has been used in the current exercise, resulting in a perspectivethat is different from the one usually provided by analyses of thissort, which are undertaken, in most cases, by members of the accountingprofession, who have an inherent bias (as noted elsewhere below) towardsecrecy jurisdiction activity. As a necessary alternative, a different weightinghas been used here. We have weighted by the GDP of the jurisdictionoffering the tax rate. There is a good reason for this choice: GDP is areasonable indication of the size of national markets, and this is a good