Globalization and Taxation: Theory and Evidence

41 Pages Posted: 25 Apr 2019

See all articles by Priya Ranjan

Priya Ranjan

University of California, Irvine - Department of Economics

Giray Gozgor

Istanbul Medeniyet University

Date Written: 2019

Abstract

We construct a theoretical model to capture the compensation and efficiency effects of globalization in a set up where the redistributive tax rate is chosen by the median voter. The model predicts that the two alternative modes of globalization- trade liberalization and financial openness- could potentially have different effects on taxation. We then provide some empirical evidence on the relationship between taxation and the alternative modes of globalization using a large cross-country panel data set. On average, globalization is associated with lower taxation but there is some evidence that in countries with high capital-labor ratio, globalization is associated with increased taxation. We make a distinction between de jure and de facto measures of globalization and find a strong negative relationship between taxation and de jure measures of globalization. The results for de facto measures of globalization are mixed.

Keywords: trade liberalization, capital market openness, redistributive taxation, median voter

JEL Classification: F110, F210, F680, H110

Suggested Citation

Ranjan, Priya and Gozgor, Giray, Globalization and Taxation: Theory and Evidence (2019). CESifo Working Paper No. 7598. Available at SSRN: https://ssrn.com/abstract=3377695

Priya Ranjan (Contact Author)

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

Giray Gozgor

Istanbul Medeniyet University ( email )

D-100 Karayolu
Merdivenkoy Mevkii No:6/1 Goztepe/Kadıkoy
Istanbul
Turkey

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