Pay as You Wish: Globalization, Forum Shopping, and Distributive Justice
32 Pages Posted: 23 Jun 2014
Date Written: June 20, 2014
In their classic article Why the Legal System Is Less Efficient Than the Income Tax in Redistributing Income, Louis Kaplow and Steven Shavell argued that tax laws are more efficient than other areas of law (such as private law) in redistributing income based on what is known as the “double distortion” argument.
Contrary to this conventional wisdom, this Article argues that globalization, with the variety of competing legal jurisdictions and planning opportunities it has produced for taxpayers, seriously undermine states’ ability to redistribute income via tax laws. Yet other legal rules may be harder to avoid and thus — contrary to the canonical position — suited to playing a more dominant role in redistribution.
In comparing the various alternatives (in particular looking at tax rules versus non-tax rules) for redistribution under conditions of jurisdictional competition, two factors are particularly salient: First, is the extent to which any rule, tax or non-tax, is amenable to choice-of-law planning: The field of law in which it is most costly to move to a more attractive jurisdiction will be the sphere in which redistribution is most efficiently achieved. Second, is whether there are actually alternative regimes that offer less redistribution. All other things being equal, the more harmonized a legal area is across jurisdictions, the better site for redistribution it is.
Since tax laws are both relatively easy to plan around and tend to be less harmonized than other areas of law, there is no a-priori advantage to using tax laws to redistribute.
Keywords: Tax, Redistribution, Globalization, Legal Rules, Choice of Law, Competition
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