Globalization and taxation: Implications on national tax policies and international tax competition

This review examines the profound impact of globalization on national tax policies and the ensuing tax competition among countries. Globalization, characterized by increased economic integration and cross-border capital and labor mobility, has significantly influenced national tax structures and policies. Countries are compelled to adapt their tax systems to remain competitive in attracting and retaining investments, leading to a shift from traditional income taxes to consumption-based taxes and adjustments in corporate tax rates. This competition often results in a "race to the bottom," where countries continuously lower tax rates to outbid each other, thereby affecting government revenues and public service funding. The review explores how globalization erodes traditional tax bases, creating challenges for national policymakers who must balance the need for competitiveness with revenue requirements and equity considerations. Through case studies, the effects of tax competition are analyzed, highlighting the outcomes of various national strategies in attracting global capital. Additionally, the role of international tax treaties and agreements in shaping global taxation dynamics is scrutinized. Treaties aimed at avoiding double taxation and preventing tax evasion, such as those orchestrated by the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, and EU tax policies, are pivotal in harmonizing tax rules and reducing tax arbitrage opportunities. These agreements foster international cooperation, attempting to create a more stable and fair global tax environment. The interaction between national tax policies and global agreements is complex, involving coordination and occasional conflict. The effectiveness of these international efforts in addressing the challenges posed by globalization is assessed, considering both successes and limitations. Emerging trends, such as the taxation of the digital economy and the increasing involvement of developing countries in global tax discussions, are also explored. The review provides insights into the dynamic interplay between globalization and taxation, offering recommendations for policymakers to navigate the intricate global tax landscape. Future challenges and opportunities are discussed, emphasizing the need for continued international cooperation and adaptive national policies. Keywords: Globalization, National Tax Policies, Tax Competition.