While the OECD is still pushing for tax competition laws (i.e. harmonization of legal norms and policies regarding taxes), there is some sanity in the EU - luckily a legal advisor has told EU finance ministers that their idea for a "financial transaction tax" (the renown Tobin tax) just can't work as it's discriminatory. Left unsaid - it's a terrible policy and threatens financial intermediation throughout the region.
Mexico also looks like it's heading down the road of fiscal suicide:
"...the president said the reform package, which he unveiled on Sunday night flanked by opposition parties, nonetheless included green taxes on fuel, a fat tax on sugary drinks and a stock market gains tax. The reform package has been presented as a decisive step towards funding universal social security and making the tax system fairer and clearer."
Appears that the policy reforms proposed will make the tax clearer (nothing is beyond taxes) and fairer (everyone is getting it in the tuckus). I wonder what happened to the wave of flat tax reforms, and why they have cratered so badly in the wake of the global financial crisis.
Apparently said the Prime Minister of Japan:
Japan’s economy expanded at a significantly faster rate in the second quarter than initially reported, the government said on Monday, increasing the chances that Shinzo Abe, prime minister, will press ahead with a contentious sales tax increase.
So to recap, an economy finally regains its footing - or, rather, after years of policy-induced stagnation, finally shows a glimmer of hope. And the government wishes to crush that incipient bud with a tax increase. When discussing institutions, always keep an eye on incentives - the incentive of government is to grow. See:
Scenario 1: The economy is in recession
Solution: The government needs funds to help spur on the economy! Raise taxes!
Scenario 2: The economy is improving.
Solution: With everything getting better, we can now recoup revenue losses during the recession. Raise taxes!
It's the "to a man with a hammer, everything looks like a nail" problem. Simply put, there is no government organ anywhere that has the institutional incentive to a) lose power, b) shrink its own budget, and c) make itself irrelevant. Abe-onomics, indeed. A recipe for another long, cold winter in Tokyo.
With the G20 meetings in full swing, most eyes have been turned towards the contortions of the world on Syria. But that doesn't mean that there isn't economics being discussed. And from the Dutch, ironically the home of the modern trader-state, comes a horrific proposal to direct energy towards tax evasion. I would say building the supra-national tax administration, able to punish tax evaders anywhere in the world, should be less of a priority than, say, growth-enhancing policies. Or stable monetary policy. Or improved business environments. Or labour market flexibility. Or about a million other things.
Predictably, the OECD approves.
Dr. Christopher Hartwell is an institutional economist and President of CASE Warsaw. All commentary on this page is exclusively his own and in no way represents the views of CASE, his wife, his dog, or anyone else. Especially not his wife or his dog.