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Tax exporting occurs when a country (or other jurisdiction) indirectly encourages economic activity to move to another country (or jurisdiction) with a lower tax burden. This is more likely if the economic activity is more mobile. For example, land is not mobile, so it is difficult (if not impossible) for a country to export land taxes to another country. On the other hand, investment capital is more mobile, so heavy capital taxes will encourage capital to move to another country.
Tax exporting is not just relevant for countries. Sub-national jurisdictions (such as states, provinces and local governments) can export economic activity to nearby jurisdictions if their tax rates are excessive.
The theoretical argument from optimal tax theory is that activities with high elasticities (of supply or demand) should have a lower tax rate (this is also known as Ramsey taxation). This will maximise social welfare.
Based on this argument, the highest rates of tax should apply to land, lower tax rates should apply to labour, and the lowest to capital. This of course ignores equity arguments, which would probably argue for higher tax rates on capital and lower on labour.
- Shafik Hebous (2011) "Money at the Docks of Tax Havens: A Guide", CESifo Working Paper Series No. 3587, p. 9
- Moran Harari, Markus Meinzer and Richard Murphy (October 2012) "Financial Secrecy, Banks and the Big 4 Firms of Accountants" Tax Justice Network
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