Bridging the North/South Divide: International Redistribution and Tax Competition

Abstract

Finding ways to help bridge the North/South divide in terms of life expectancy, health, and living conditions may be the most important task facing humanity at the beginning of the 21st century. The Millennium Development Goals adopted by the UN are a beginning step toward that goal, and require additional funding of about $50 billion per year (over existing aid). However, under current conditions, it seems extremely unlikely that democratic approval can be given in developed countries to such an increase in aid, and certainly not to the level of redistribution required to bridge the gaps. Nor are new methods of financing, such as the Tobin Tax, likely to be enacted given rich world opposition. In these circumstances, the best policy approach is for the rich countries to help developing countries help themselves. In order to do that, they need to restrict harmful tax competition among developing countries and competition to attract flight capital by developed countries.