The Impact of Globalization and International Tax Competition on Tax Policies

Alla Sokolovska,Andriy Stavytskyy,Vincent Giedraitis,Oleksii Lyulyov,Tetyana Zatonatska

doi:10.5430/rwe.v11n4p1

Abstract

The aim of the paper is to determine to what extent the strengthening of the transparency of the Ukrainian economy and its incorporation in international tax competition affects the tax policy of the country and the peculiarities of its tax system. In the study, the logical analysis of the direct and inverse relationship of changes in taxation with such manifestations of globalization, as the movement of capital and labor resources from Ukraine and to the country, is combined with an empirical (regression) analysis of the relationship between globalization and the main characteristics of the Ukrainian tax system. It is proved that the increase of incorporation of Ukraine in globalization processes, despite the reduction of taxes on the main factors of production, is accompanied by an increase in the general level of tax burden on the economy (tax rate). The above mentioned is a consequence of increase of other taxes, including excise, caused both by internal needs of Ukraine (conducting the policy of fiscal consolidation caused by large public debt, and increasing defense expenditures) and its international obligations (EU Association Agreement). The tax system in Ukraine is much stronger (about 25%) influenced by the general index of globalization in comparison with its subindex characterizing the economic component of globalization. Obviously, this is owing to the greater influence on taxation in Ukraine of other components of globalization such as political and social one. The results show that the growth of the globalization index is accompanied by rather expected effects such as reduction of corporate profit tax rates and personal income tax, transferring the tax burden from capital to labor and, to a greater extent, on consumption, improving business conditions in the context of tax payments, and specific increase in the general level of tax burden on the economy, significant losses of the state that is not so much from the reduction of tax rates as from the erosion of the tax base on income, which is the result of a combination of negative effects of external and internal factors; the threat of escalating the policy of low tax rates. It is recommended to the Ukrainian Government to focus increasingly on the tax evolution trends in post-socialist EU countries to strengthen Ukraine`s position in tax competition with this group of countries.

Highlights

In the second half of the 20th century –the beginning of the 21st century, the crucial factor in the transformation of national tax system and tax policies is becoming the globalization of the system of world economic relations (Singh, 2019a; Singh, 2019b), which, according to S.Gyglia (2018), "is a process that blurs national boundaries, integrates national economies, cultures, technology and management, and creates complex relationship of mutual dependence" ("Globalization is a process that erodes national boundaries, integrates national economies, cultures, technologies and governance, and produces complex interactions of mutual interdependence")
All mentioned leads to the relevance of the study of the overall tax consequence of globalization, and its impact on the tax policies of certain countries, the peculiarities of which are determined by external factors, and by internal factors-the needs of the national economy, the interests of all interested parties, the level of development of institutions, those who perform the function of tax administration
The growth of the integration of the Ukrainian economy in world economic relations was accompanied by an increase in the inflow of foreign investment in its development

Summary

Introduction

In the second half of the 20th century –the beginning of the 21st century, the crucial factor in the transformation of national tax system and tax policies is becoming the globalization of the system of world economic relations (Singh, 2019a; Singh, 2019b), which, according to S.Gyglia (2018), "is a process that blurs national boundaries, integrates national economies, cultures, technology and management, and creates complex relationship of mutual dependence" ("Globalization is a process that erodes national boundaries, integrates national economies, cultures, technologies and governance, and produces complex interactions of mutual interdependence"). All mentioned leads to the relevance of the study of the overall tax consequence of globalization, and its impact on the tax policies of certain countries, the peculiarities of which are determined by external factors, and by internal factors-the needs of the national economy, the interests of all interested parties, the level of development of institutions, those who perform the function of tax administration. The level of its globalization, measured by the KOF globalization index (2018), has increased from 34.76 in 1991 (the value of the overall indicator) to 74.25 in 2016. By this indicator, it ranked 42nd among 203 countries of the world

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Results

Conclusion