Friday, August 30, 2013

Tax attractiveness

Tax competition is good and bad. It is good because it forces governments to run lean operations and minimize distortions, but it is also bad because small governments can undercut larger ones and increase their own revenue while reducing aggregate well-being. Some firms and individuals are quite responsive as to where they should set up shop, so it could be useful for them to figure out where the best tax conditions are offered.

The latest attempt at figuring this out comes from Sara Keller and Deborah Schanz. They build a composite index from 16 indicators relevant for company taxation. While one can quibble about the weights but on each indicator, their normalization, and some of the redundancy, there is still useful information in the results. While it should be no surprise that the Caribbean is the most attractive area for business taxes, it is more surprising to see that Europe is significantly more attractive than North America. In fact, the United States are among the least attractive of the 100 countries Keller and Schanz considered (only Argentina, Indonesia, Peru, the Philippines, South Korea and Venezuela are worse, and Zimbabwe is in the sample...). I wonder, though, how much this would change by considering South Dakota and Delaware separately.

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