Process of Globalisation and tax competition in Europe

In recent years we can see the progressive integration of the world’s economies. Technical progress, improved communications and expanded trade and investment flow have led to a growing globalisation of economic activity.

The impact of globalisation comes from increasing competition, increasing mobility of factors of production, capital and labour forces. Capital can move from regions where its return is low and labour costs are high to regions where it return is high and labour costs are low. Workers, especially high-skilled ones can move to countries with low tax levels, or underreport the incomes earned abroad.

A tax competition has become a new phenomenon of the globalise world. The competition is provided by low tax rates or by tax incentives, especially with the goal of the attraction of foreign investments. In European countries, high tax rates, high social contribution duties increase the costs and mainly the costs of labour for Enterprises, which leads to deterioration of the international competitive position of Europe.

Enterprises, like all taxpayers have a strong incentive to lower their tax liabilities. And they can pursue this objective in today’s globalise world. The European countries will lose their revenues if no reform will be commenced. What could be a problem is that government will experience the fall of revenues at the same time when there will be a need for more spending, especially in social protection areas, as a consequence of the ageing problem or the distribution inequality. It is necessary to realize that globalisation reduces the capacity of the state to intervene and government lose the instruments for intervention. By realizing that and by the well-timed reform of social security system many problems of the resources absence could be precluded.

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One thought on “Process of Globalisation and tax competition in Europe

  1. From my point of view, it would be no solution to reduce taxes in Europe. Although our countries have the highest amount of taxes, we are also the countries which feature the highest social responsibility. I think, this is an important fact to consider.

    Reply

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