Edited by Miriam L. Campanella and Sylvester Eijffinger
Chapter 2: EU governance under duress? Tax policy coordination under globalization
Mehmet Ugur INTRODUCTION One of the issues in the debate on globalization is the extent of policy arbitrage caused by cross-border mobility and the impact of this arbitrage on the quality of governance. This chapter aims to contribute to the current debate by developing and testing a political economy model of the relationship between globalization and governance quality. The proposed model assumes strategic interaction between the state and non-state actors in a world divided into jurisdictions that compete for the loyalty of the non-state actors. It predicts that globalization, understood as increased cross-border mobility of the non-state actors, does not necessarily undermine governance quality provided that the policy issues are transparent and divisible. We deﬁne governance as the supply by a public authority of rules, procedures and codes of conduct that regulate the interaction between state and non-state actors. The quality of governance is deﬁned as the extent to which the public authority supplies these public goods in an eﬃcient and non-discriminatory manner. In this context, governance quality is an indicator of the extent to which the public authority is not captured either by state bureaucracy or by non-state actors. (For similarity and diﬀerences between this deﬁnition and others discussed by the EU Commission and the European Bank for Reconstruction and Development, see European Commission, 2001; Hellman and Schankerman, 2000). One strand in the globalization and integration debate argues that increased cross-border mobility would lead to policy arbitrage between jurisdictions. Policy arbitrage entails convergence, which...
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