The Political Economy of ‘Tax Spillover’: A New Multilateral Framework
| DOI | http://doi.org/10.1111/1758-5899.12655 |
| Date | 01 May 2019 |
| Author | Andrew Baker,Richard Murphy |
| Published date | 01 May 2019 |
The Political Economy of ‘Tax Spillover’: A New
Multilateral Framework
Andrew Baker
University of Sheffield
Richard Murphy
City, University of London
Abstract
Tax spillovers are the effects one country’s tax rules and practices have on other countries. They have been assessed in aggre-
gate terms by the IMF using econometric models, and were found to have a ‘significant and sizable’impact in reducing corpo-
rate tax bases and rates in ‘developing countries. However, a widely accepted form of country level spillover analysis remains
elusive, despite demands from non-governmental organisations (NGOs) and international organisations (IOs). We present the
first framework for conducting comprehensive national level spillover analyses using a qualitative evaluation framework in
three steps. First we identify the importance of the normative underpinnings of multilateral evaluation frameworks. We make
the case for an international moral harm convention that discourages states from doing harm to other states through their
tax policies. Second we illustrate some of the difficulties in conducting country level spillover analyses using econometric
methods, while advancing a broader conception of spillover, based on the defensive purpose of corporation tax. Third we pre-
sent a new framework for conducting spillover analysis, that assesses relationships between four direct taxes and a number of
administrative and institutional features of tax systems. Finally, we present initial pilot qualitative assessments for the UK and
Denmark, involving scores, risk dashboards and visualisations.
Policy Implications
•Systematic country by country tax spillover analysis should be undertaken in a multilateral process overseen by existing
international organisations, with the IMF, the OECD, the UN and the World Bank all feeding into the precise design of the
exercise.
•Such an exercise should not be exclusively quantitative, but should involve a substantial qualitative process, involving
reporting and assessing of a wide range of tax practices and processes.
•Such an exercise should be informed by the aim of reducing the harm states do to their own fiscal autonomy and that of
other states as a practical element of an effective international moral harm convention on taxation.
•Spillover assessments should be driven by an understanding that the purpose of corporation and capital gains taxes is to
defend and buttress tax systems as a whole.
•To be comprehensive spillover assessment should consider spillovers between and within tax systems covering the follow-
ing areas: income tax; corporation tax; capital gains tax; social security; tax politics; tax administration; company and trust
administration; and international agreements.
•Spillover assessment is therefore domestic as well as international and should revolve around three forms of assessment:
domestic spillovers; international risks generated by a jurisdiction; international vulnerabilities of a jurisdiction.
•Professional assessors conducting spillover analysis should collect impressions about current tax practice through wide
ranging stakeholder consultations, including interviews and surveys, in a process similar to the corporate governance
ROSCs conducted by World Bank Staff. These field notes should translate into a more qualitative style country reports assess-
ing and reporting on tax practices and the spillover risks in the jurisdiction, and should contain targeted policy recommenda-
tions.
The Context and Case for Tax Spillover
In a world characterised by complex, multifaceted cross-border
socioeconomic phenomenon, conventional measurement sys-
tems are under strain (Christophers, 2013; M€
ugge,2016).Many
traditional numerical indicators and methods of calculation
struggle to provide accurate gauges of complex global
economic chains. ‘Dodgy’contestable data repeatedly blight
international measurement and evaluation processes (Broome
and Quirk, 2015b, p. 829). This raises the question of how gov-
ernments, international organisations, civil society and even
social scientists can and should respond.
One way in which processes of global governance can deal
with such complexity is to make greater use of qualitative
©2019 The Authors. Global Policy published by Durham University and John Wiley & Sons Ltd. Global Policy (2019) 10:2 doi: 10.1111/1758-5899.12655
This is an open access article under the terms of the Creative Commons Attribution License, which permits use,
distribution and reproduction in any medium, provided the original work is properly cited.
Global Policy Volume 10 . Issue 2 . May 2019
178
Research Article
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