State Autonomy in Shaping Tax Policies: Facts and Myths Based on the Situation in OECD Countries

  • 1 Kozminski University, , 59 Jagiellonska St., 03-301, Warsaw, Poland
  • 2 University of Warsaw, , 1/3 Szturmowa St., 03-678, Warszawa, Poland

Abstract

Purpose: Capital flows, tax competition, multinational companies and tax havens weakens governments’ ability to lead independent tax policy. This race to the bottom, especially in the case of CIT rate, seems to work. Aim of the text is to show that the governments are not as powerless as it is often claimed. Despite common opinion, nation­states retain a relatively significant autonomy in creating their own fiscal policies, including tax instruments. Size of funds kept in tax havens have not been growing for few years and international cooperation of tax authorities is more and more efficient in dealing with the tax fraud.

Methodology: The study uses desk research method for theoretical reasoning to verify the research hypothesis. Moreover, the study seeks answering if the application of EU tax policies determines national tax policy. To that end, the authors utilize time series and cause­effect analysis, as well as quantitative research for the systematization of statistical information and regression analysis for the examination of statistical dependencies. Tax competition or the functioning of tax havens naturally limits the realization of the fundamental functions of fiscal policies, although the taxation remains one of the most crucial instruments of macroeconomic and income policy of national authorities.

Findings: The most important data on public revenues structure in different OECD countries indicate that taxation remains one of the most crucial instruments of macroeconomic and income policy of national authorities. We also show that impact of FDI on hosting economy is not as positive as it is said to be. There is no relation between FDI and R&D spending and level of wages in hosting country is even affected in the negative way by the FDI inflow. Irrespective of the regulatory details introduced at the EU level – the basic factor affecting jets coordination in the field of cooperation between tax services brings effects both in terms of the current collection of tax liabilities and the creation of regulations that hinder tax avoidance and under statement assessment.

Originality/value: The study focuses on an analysis of tax policy. The view that taxation of international corporations is fraught with difficulties finds support in the undeniable reality of tax competition. Moreover, a large and growing share of profits is transferred to low­tax places. The prospects for taxing international companies with positive rates seem unoptimistic. Therefore, it is essential to check how the national economy is affected by the FDI inflow in OECD countries.

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