The Marketization of Tax Sovereignty

Abstract

States are traditionally conceived of as powerful sovereigns with the capacity to make and enforce mandatory rules, impose taxes, and set redistribution. Accordingly, many policy decisions (tax policy included) are considered the domain of national sovereigns. From the traditional perspective, then, we envision a state ruled by a sovereign that is entrusted — through a political process — with exclusive tax legislative powers, aiming (at least ideally) to maximize welfare (efficiency) and justly (re)distribute it while reinforcing the underlying normative values shared by its constituents. Such a sovereign has the power and — assuming it treats its constituents justly — legitimacy to so govern. Globalization is significantly transforming the nature of sovereignty. In this era, the conventionally-envisioned all-powerful sovereign is but one of two-hundred or more such sovereigns that compete with one another. Competition is increasingly turning states into market players that offer their goods and services to potential “customers.” In this market for sovereign goods, these states vie for capital and residents, while (at least some) taxpayers “shop around” for sovereign-provided privileges, public goods, and social and cultural goods. MNEs in particular notoriously shop around for sovereign goods and pay as little in taxes as possible. This competition seems to permeate into the very nature of tax sovereignty, altering the traditional role played by the sovereign. It impacts the kinds and quantities of public goods and privileges offered by the state to its constituents; it affects the underlying meanings and values of the sovereign-subject interaction; and it transforms modes of political participation and schemes of distribution.