Basic considerations on tax competition – how can tax competition be achieved?
The question of how real tax competition between states and regions can be established is of central importance for the design of modern societies. Unlike in the classic competition in the private sector, in which consumers easily switch between providers, tax competition is much more complex and less direct. While in everyday life aDisappointed customer can simply change the baker, if the rolls do not meet expectations, taxes are not a product that is purchased, but a burden that would like to be avoided. The tax burden is a factor that motivates people and companies to look for alternatives – but changing the tax environment is important, often verycomplex conditions.
The hurdles of the change of location
Anyone who decides to move away from a high tax country is faced with a multitude of challenges that go far beyond a simple change of provider. The shift of the center of life usually means that a new job has to be found, the previous home has to be abandoned and a new place to stay organized. In addition, often the familyis affected; A change of school for the children, leaving the well-known social environment and saying goodbye to friends and relatives are just a few of the associated burdens. The change to another state is often associated with dealing with a foreign language or another culture, which makes the decision even more difficult. The bigger thatLand to be left, the more obstacles and obstacles are built on the way to the new center of life.
Emotional and social ties as an obstacle
The emotional and social ties that people connect to their homeland and their familiar environment should not be underestimated. Anyone who considers moving to another country not only weighs up economic aspects, but also asks whether the separation of family and friends, which is often associated with a move, is really reasonable. The greater the distance to the oldHome, the less likely to visit, and the step of actually emigrating is to be well thought out. Many therefore prefer to accept a high tax burden than undergo the effort of a complete new beginning.
The role of state size and European integration
With the increasing size of a state, the distance that has to be overcome to change location also increases. This acts as a natural brake for tax competition, because the effort involved in reducing your own tax burden by moving is increasing significantly. Against this background, the European integration that has been discussed again and again receives a critical aftertaste. The idea of aIncreased tax rates within the European Union will reduce competition between states. The introduction of minimum tax rates prevents individual member states from flexibly adapting their tax policy to the needs of their citizens. In practice, this means that the room for taxpayer to act is getting smaller and smallerAnd the possibilities of reacting to excessive taxes through a change are increasingly restricted.
Why small political units promote competition
The concept of small, manageable political units proves to be particularly conducive to functioning tax competition. Anyone who lives in a country where taxes are perceived as too high can change providers much easier in an environment of small countries. The geographical proximity, often divided language and similar cultural imprints make the move easiersignificantly. In such cases, it is possible to leave the country without giving up the entire social network or having to cope with major cultural changes. With a smaller distance and fewer barriers, changing becomes a real option for broad sections of the population, not just for particularly wealthy or mobile individuals.
Impact on states and companies
The possibility of changing locations is of great importance not only for private individuals, but also for companies. Companies can often react faster and more flexibly to tax changes. If a state alienated its taxpayers with high taxes and a bureaucratic administration, they must expect the churn of productive forces. A government standsThen before a clear choice: either she tries to prevent the emigration through restrictive measures, for example through exit restrictions or special taxes, or she actively strives to survive through attractive framework conditions in the competition for productive citizens and companies. Just as holiday regions are courting guests, states must be around the best minds and the strongestcompanies compete.
The example of regional tax policy
The principle can be clarified with concrete examples: If a region like French Savoie advertises low taxes and a lean state, it could attract residents and businesses from neighboring regions. The cultural and linguistic proximity makes the change particularly attractive, since the changeover remains low and the social environment is preservedcan become. The result would be increased pressure on the neighboring regions to reconsider their own tax rates and expenses to prevent the migration. Residents benefit from the fact that they actually have a choice in a region competition and can opt for the most attractive overall package.
Consequences of increased centralization
The larger political and economic units become, the more difficult it becomes for individuals to evade government access to income and wealth. A complete centralization, for example in the form of a world state, would lead to an absolute tax monopoly that practically no one could escape. Competition for the best framework conditions would be omitted, andThe possibilities of achieving improvements by changing locations would practically be no longer available. In such a system, taxes could be increased at will without citizens or companies being able to avoid.
Tax policy as an instrument of social control
In the past, tax policy served primarily to cover the costs of maintaining a functioning community. Today, however, tax policy has increasingly turned into an instrument of redistribution. Government agencies take from some to give it to others and thus achieve certain political goals. This practice creates dependencies andEnsures loyalty to policymakers for those who benefit from redistribution. The danger is that tax policy is no longer oriented towards the common good, but is used to reward certain groups and to secure political power.
Competition as a protective mechanism
Ultimately, it shows that functioning tax competition can be effective protection for citizens and companies from excessive government burdens and arbitrariness. The easier it is to switch between different providers – in this case states or regions – the greater the pressure on the policy to create attractive conditions and responsibly with theto deal with income. Small political units favor this competition, while large associations and centralizations weaken or even make it impossible. Tax competition is therefore not only an economic, but also a social and democratic corrective that can limit the abuse of power and inefficient structures.
