International Handbook on the Economics of Integration, Volume II Competition, Spatial Location of Economic Activity and Financial Issues
Competition, Spatial Location of Economic Activity and Financial Issues
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Edited by Miroslav N. Jovanović
Chapter 20: Tax Competition and the Harmonisation of Corporate Tax Rates in Europe
20 Tax competition and the harmonisation of corporate tax rates in Europe Killian J. McCarthy, Frederik van Doorn and Brigitte Unger* 1 INTRODUCTION Over the course of the 20th century, deregulation, liberalisation and increased capital mobility created the phenomenon of the multinational firm, and provided an environment in which such firms could both proliferate and thrive. Between 1969 and 2002 the number of multinationals soared, from 7,258 to more than 82,000 (Drucker, 2005; UNCTAD, 2009), and so successful were they that, by the end of the century, somewhere between 29 and 51 of the world’s largest economic entities were private multinational firms.1 General Motors, for example, was ‘economically’ more significant than Denmark in 2002, and DaimlerChrysler more significant than Poland, while Royal Dutch Shell, IBM and Sony were each more important than Iran, Ireland and Pakistan.2 Taken together, the world’s top 200 multinational firms accounted for about 27 per cent of global economic activity in 2000, and earned between them an income greater than that of the world’s poorest 1.2 billion people (Anderson and Kavanagh, 2000). As the process of globalisation continues to knit national economies into a world economy, however, and as everything from banking to telecommunications, energy and manufacturing slowly falls under private multinational control, ordo-liberal fears of an undemocratic centralisation of power are fast being realised (Schmitz, 2002). And with this, concerns are being raised on the question of taxation (OECD, 1998). Traditionally, the payment of taxes has been an obligation for all individuals or...
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