Global Trends and Constraints on Tax Policy in the Least Developed Countries

Through decades of tax reform and cross-border collaboration, the world’s wealthiest countries have adopted domestic tax policy norms that meet their mutually beneficial interests. But these norms have introduced rigorous change and increasingly rigid parameters for tax policy in the world’s poorest countries. While much scholarly attention is devoted to identifying tax strategies that poor countries could or should adopt in response to global tax trends, relatively little is paid to the process through which these trends developed and how they constrain alternative policy choices. This article argues that many of the biggest challenges to taxation faced by the world’s poorest countries are a reflection of the international community’s failure to consider the impact of their tax policy consensus on these vulnerable nations. It concludes that the world’s wealthiest nations should unleash the global constraints on tax policy by reforming their own approaches to taxation.


Building schools, ensuring access to food, health care, clean water, and shelter—these are classic national development goals which generally rely on the state’s ability to raise revenues through taxation. When these goals remain unmet, as they often are in the world’s poorest countries, policy prescriptions too often focus on the administrative failings of individual governments. But many of the biggest challenges to taxation faced by the world’s poorest countries are not primarily a reflection of the shortcomings of particular tax administrations. Rather, these challenges reflect the international community’s failure to consider how the globalization of tax policy norms impacts vulnerable nations.

The world’s wealthiest countries have globalized tax policy by developing consensus on a set of mutually agreeable tax norms.[1] The world’s least developed countries, most of which are in Sub-Saharan Africa,[2] are all but missing in this global dialogue.[3] Instead, these countries have largely played a responsive role toward externally-developed tax trends.[4 ] As such, they experience a great deal of monitoring and assessment of fiscal performance to exogenous tax benchmarks,[5] which has produced much scholarly attention to the tax strategies that least developed countries could or should adopt.[6] However, it has produced relatively little attention to the constraining role of global tax trends.

Ongoing reflection and critical assessment of substantive tax policy choices is important. But it is equally important to continually assess how existing policymaking structures and tax policy practices affect the world’s poorest peoples.[7] That is the aim of this Article. It argues that a series of interrelated global tax trends have indelibly altered the tax policy landscape and created significant constraints on the policy choices available to the least developed countries.[8] These trends have created rigid tax policy parameters even as revenue authorities in the world’s poorest countries face increasing challenges to effective taxation in a globalized world. In addressing these challenges, it is imperative to take a globalized approach to tax reform that looks to the main source of global tax policy trends, namely, developed countries, to adopt policy reforms that would be more responsive to the needs of the world’s poor.[9]

Part I discusses the first global tax trend, the free trade movement, and analyzes how this trend virtually erased a major historical source of revenue while re-casting taxation in the public consciousness as a distortion-producing phenomena. Part II discusses the prevalence of tax competition as a second global tax policy trend, and analyzes how this trend locks poor countries in a destructive contest to attract scarce foreign investment.[10 ] Part III argues that the growing popularity of value added taxation is a third global tax trend, which constrains tax policy by commanding resources and foreclosing alternative approaches.[11] Part IV concludes that the challenges to taxation that are created by these trends require systemic response by those most likely capable of producing it, viz, the developed countries which have been most integral in creating the existing order.


The first and arguably most important global tax trend is the non-taxation of international trade.[12] Free-trade theory, of which non-taxation of trade is a major component, obviously enjoys long-standing and widespread endorsement from economic experts. It also enjoys widespread adherence across the globe, although it is still a progressive goal rather than a universal reality.[13] Yet it is not that long ago that trade taxation provided the main source of national tax revenues in states around the world, including in the United States.[14]

Consequently, although those in trade circles may not identify themselves as tax reformers per se, the free trade movement represents a major tax reform effort: free trade effectively dismantled the world’s reliance on tariffs as a revenue source. That is not to say that free trade eliminated tariffs: all countries continue to impose tariffs, and some countries, especially very poor ones, continue to rely heavily on the revenue generated from these taxes.[15] But the free trade movement a the discourse on trade taxation from one which concentrated on the revenue-raising ability of this tax to one concerned primarily with its protectionist proclivities. In so doing, the free trade movement introduced an important intellectual constraint on trade taxation that has had far- reaching consequences for tax policy.

The emphasis on free trade in the period after World War II created international consensus around the idea that tariffs (as well as other trade barriers) created particular distortions that could be coherently identified and eradicated, thus paving the way for efficiency in the global market and national economic growth.[16]

For tax purposes, free trade became an effective constraint on national tax policy through the guiding principles of the Washington Consensus: that trade should be freed from tax, while the remaining tax base “should be broad and marginal rates should be moderate.”[17] The idea is that taxing some factors or sectors (such as international trade) can cause more economic distortion than taxing others (such as, for example, income from labor).

The relative measurability and significance of distortion created by a particular form of taxation continues to be the subject of extensive debate among economists. Recent scholarship asks what is and what is not known about where the ultimate burden of taxation falls in society, and concludes that little is known and little can be known.[18] What seems clear from this literature is that the degree and kind of distortion expected to arise from any particular tax depends heavily on context.[19] Framing which tax produces relatively more or less distortion than the next may thus be principally a function of ideology.[20]

For example, while trade taxes are generally described as distortionary, recent environmental concerns have prompted some policymakers to view the failure to impose an import tax on certain types of trade as potentially distortion-producing.[21] Consistent with this view, the European Union has proposed to impose trade taxes on imports from countries that do not impose a “carbon charge” on their exports, and the United States is debating a similar policy.[22 ]

The imposition of a carbon charge in the form of a “border tax adjustment”—a tariff—has been described as a way to remove distortion, namely the ability of firms to externalize the cost of pollution, and to “rebalance the economic burden of shifting to a low-carbon society.”[23]

If the assessment that a given tariff is “externality- correcting” is sufficient to mitigate its otherwise distortion- producing character, the efficiency argument against tariffs could be vulnerable to multiple significant exceptions.[24] The example of carbon taxes suggests that one country’s failure to meet a given environmental standard might justify (or even demand) the imposition of a tax at another country’s border. If that is the case, it seems equally plausible that a country’s failure to meet standards in other regulatory areas, such as labor, health, discrimination, etc., could equally justify the imposition of similar taxes.[25 ] No one has yet proposed a fair labor tax, a national health care tax, or an equal rights tax on these grounds, and the fate of carbon taxation is still undetermined.

However, the existing global trade regime would likely prevent nations from correcting such distortions, as demonstrated by the “Tuna-Dolphin” and “Shrimp-Turtle” trade disputes between the United States and some of its WTO trading partners. In these disputes, the WTO’s dispute resolution body considered and rejected various attempts by the United States to impose costs—via increased regulatory standards—on imports from countries that did not adopt certain environmental practices favored by the United States.[26 ] The WTO found that imposing regulatory standards on imports, while serving important environmental needs, amounted to “unjustifiable discrimination” against trade.[27] Since the countries had agreed on trade liberalization, but not environmental standards, the WTO determined that liberalizing trade must prevail above these other goals.[28] The effective result of these disputes appears to be that countries cannot easily impose trade restrictions even if such restrictions remove existing distortions.[29]

Accordingly, the consensus that international trade should be free from taxation has effectively stricken tariffs from a mental list of available taxes.[30] Free trade thus imposes a significant constraint on tax policy design within virtually all countries, including the world’s poorest.[31] Moreover, once trade has been eliminated from the list of appropriate sources for raising tax revenues as a policy matter, the distortion label is likely to spread easily to other forms of taxation. This may happen even where the economic analysis is ongoing and long-accepted beliefs are continually being re-considered, as in the area of tax competition.


If free trade is a logical and compelling policy choice in the quest for economic growth, freeing other forms of global economic activity should be equally compelling. But the economic narrative is less clearly stated outside of trade taxation. As continual tax reform around the world demonstrates, designing an efficient tax system is difficult, the ideas are subject to ongoing debate and refinement in response to empirical study, and policy prescriptions depend heavily on their specific contexts.[32] Still, the prevailing view among many tax policy experts is that cross-border income taxation, especially corporate income taxation, significantly impedes cross-border capital flows.[33] Unlike in the area of trade taxation, international consensus has not (yet) coalesced around the idea that all forms of income taxation on foreign investment are distortionary and should be universally eliminated. Yet clear signals are being sent in international circles,[34]and nations around the world have embraced extensive tax incentives for foreign investors in an effort to be competitive with their neighbors.[35] A growing number of nations have abandoned efforts to tax foreign portfolio and direct investment (i.e., business profits earned by foreign investors)[36]even though economists suggest that the potential benefits from providing such incentives are unclear.[37]

These practices have created such major constraints for tax policy design in the least developed countries that experts have concluded that these countries “have little leeway in deciding what incentives to provide [since] this is largely decided by international competition.”[38]

The United States’ portfolio interest policy is one example of how economically powerful nations can disrupt and reset the global tax policy equilibrium. Prior to the mid 1980s, many countries, including the United States, imposed taxes on interest and dividends earned by foreign persons on their investment portfolios.[39] Even so, investors could use financial intermediaries in certain countries, with favorable U.S. tax treaty relationships, to obtain tax-free access to the U.S. bond market.[40] In 1984, the United States terminated these treaties and adopted a tax exemption for U.S.-sourced portfolio interest, simultaneously making U.S. debt more attractive in the global market[41]and setting off a worldwide trend to forego tax on portfolio interest earned by foreign individuals.[42] The capital flight that ensued thereafter, particularly from South America to the United States, is now well documented,[43] as are the subsequent decisions by other countries that they “cannot tax interest income because individuals have the option of investing their capital in countries that allow [them] tax- free investment.”[44]

The competition to reduce corporate income taxation is similarly demonstrated by key developed countries, including the United States, the United Kingdom, and the Netherlands[45]  Corporate tax competition is accomplished both by rate reduction and by narrowing the tax base[46] The latter may be accomplished through a variety of strategies from straightforward business tax incentives (for example, accelerated depreciation, 100%+ research and development credits, and similar base-reducing mechanisms) to duration-, geographic- or sector-based tax “holidays” or “free zones,” to the “tax haven” approach of total, permanent non- taxation of foreign investment.[47] Both rate reduction and base narrowing have become global trends.

As in the case of trade taxation, the least developed countries have embraced these practices, as evidenced by the sheer number of tax incentives, tax holidays, and free zones that have proliferated in these nations.[48] Explanations that government officials give for introducing these techniques suggests that they view the non-taxation of foreign investment as effectively required to compete internationally, rather than (or instead of) an independent domestic policy decision.

For example, when the Ugandan government announced its plans to introduce export processing zones in 2005, it framed the practice as “in line with international best practice.”[49] Ugandan officials also planned to form “a tax policy code of conduct with Tanzania and Kenya” to harmonize tax incentive programs and minimize the “mutually damaging tax competition” that they viewed as certain to occur.[50] At the same time, the Ugandan official claimed that the government would maintain “a level business playing field by avoiding granting preferential tax treatment, lending or guarantees to specific investors or firms.”[51]

It is not clear what Uganda means by international best practice, or how they will provide a free zone without granting preferential treatment—that is, after all, the point of a free zone.[52] But it seems clear that Uganda is implementing the free zone to align with international standards that constrain the taxation of foreign investment in the name of competition.

Once trade and foreign investment are freed from taxation, countries must typically adopt other strategies to maintain revenue production levels.[53] Most developed countries currently focus on personal income taxation and, outside the United States, consumption (usually value-added) taxation, as the main revenue strategies.[54 ] Analysts have encouraged less developed countries to follow suit to ensure that nations tax only their “own citizens.”[55]

However, in the least developed countries, new strategies to tax consumption, mostly in the form of so-called “value added” taxes, have become the major focus, while existing sales, excise, and personal income tax regimes have been de-emphasized.[56] The decision to focus more on one type of taxation than another might seem an inherently domestic policy matter.[57] But for these countries, embracing value added over individual income and other forms of taxation seems to be largely the product of expert consensus about institutional capacity.


No international consensus suggests that individuals should be as freed from income taxation along the same lines as trade and investment, or that traditional sales or excise taxes are somehow inappropriate in the context of a global economy.[58] Even so, the least developed countries have largely shifted their focus away from individual income taxation and existing sales and excise taxes in favor of a particular form of consumption taxation known as value added taxation.[59] The rise of value added taxation is a third global tax trend that creates constraints on tax policy in the least developed countries as focus and energy are reserved for the design, adoption, and implementation of this new tax strategy.

Developed and developing countries around the world have broadly embraced value added taxation as a major revenue raising mechanism, especially over the past two decades. The trend towards value added taxation, which is “closely associated with” the activities of the IMF in developing countries, has been described as a direct result of international constraints on other forms of taxation.[60] Its spread in the least developed countries indicates a heavy reliance on the hope that this form of tax will solve the problem of raising revenues while fostering growth in the context of a highly competitive global economy.[61] Other forms of taxation seem to be minimized as self-evidently inadequate to this task.[62]

The enthusiasm for value added taxation has been particularly visible in Sub-Saharan Africa.[63] Some ninety percent of the least developed countries in this region currently have value added taxes regimes in place, with rates ranging from five to twenty percent.[64] Cape Verde, the Central African Republic, Guinea Bissau, Ethiopia, Lesotho, Malawi, and Niger are the most recent adopters.[65] For the few remaining Sub-Saharan African countries without a current value added tax system in place, plans are underway to introduce one as soon as possible.[66] The IMF, which has been the conduit for the spread of value added taxation in the developing world, has described this regime as “the most important tax development of the latter twentieth century and certainly the most breathtaking.”[67]

But value added taxation was introduced in a number of countries that already had national sales or turnover tax regimes in place, and, after replacing these regimes, the available evidence appears to suggest that no more revenue may be raised through the new regime than it was under existing systems in the least developed countries.[68] Value added taxation is viewed as “presumptively superior” to turnover and retail sales taxes, but in many cases the tax base duplicates that of pre-existing sales and excise taxes.[69] Its presumptively superior nature seems especially difficult to understand when experts explain that the difference between some forms of turnover and value added taxes is in degree rather than kind: “there is at least one case in which [IMF] conditionality called for the adoption of a VAT in a country that was listed internally as already having one.”[70] Nevertheless, transitioning from existing sales and excise to value added taxes continues to be viewed as a worthy exercise.[71]

While much analysis of value added taxation—whether critical or supportive—appears to focus on its efficacy and its potential for base-broadening, little analysis seems to have been conducted on the opportunity cost that is imposed on alternative tax policy strategies, either with respect to pre-existing regimes or otherwise. Examples from Ghana and Cameroon illustrate the complex, multi-tiered maneuvering that resulted from the substitution of existing sales and turnover taxes with value added taxes.[72] In these nations, a number of pre-existing sales and excise taxes were alternately increased, decreased, replaced, reinstated, and finally abandoned in a successive series of reforms.[73]

In Ghana, a number of pre-existing sales and excise taxes were revised, adopted and abandoned in a series of reforms implemented between 1987 and 1994.[74 ] Excise taxes on some products were abolished, with revenues to be compensated for by doubling the general sales tax; the latter was later increased another 25%, then reduced twice in successive years.[75] A sales tax on luxury items was raised from 20% in 1987 to 35% in 1988 and a super sales tax of 75% to 100% was introduced for very high- class luxury goods in 1990.[76] These taxes were then abolished in 1992 on the grounds they were in practice only applied to imports and therefore offered too much protection for local industries.[77]

Value added taxes were introduced in 1995 as a means of consolidating the various existing taxes on goods and services, but the regime failed as the public responded with outrage and even violent protest, while the tax administrators themselves became obstacles to implementation.[78] Nevertheless, after an extensive public education campaign, the tax was re-introduced in 1999.[79]

A similar series of reforms took place in Cameroon. First, existing sales taxes were replaced with a value added-style sales tax in February 1993 with a number of exemptions.[80] The tax rate was raised five months later, while other firm-specific taxes were raised in 1992, then abolished in 1994 and replaced with two types of tariffs. Simultaneously, three forms of import taxes with varying rates were replaced with four new categories of import taxes, one new sales tax which was raised in 1994 and again in 1995, and one new product-specific turnover tax.[81] All of the existing sales taxes were then replaced by a new value added tax in 1999, and new property taxes were introduced in 2000.[82]

The changes seem frenetic. Each country abolished sales and excise taxes on some products, introduced new taxes on other products, alternately raised and lowered the various tax rates, and finally abandoned these taxes in favor of newly adopted value added taxes.[83] None of the reforms seems to have been given time to settle so that its impact could be assessed; few attempts seem to have been made to improve each of the existing or adopted measures before dismantling them.[84] Despite the vast literature on the cost of transitioning from one form of taxation to another, the nations of Sub-Saharan Africa adopted these regimes in multiple fundamental and sweeping tax reform initiatives under IMF guidance and support.[85] The self-evidence of simplicity in the form and application of value added taxation appears to be the primary explanation for eliminating the existing structures in these and other developing countries.[86] Yet the promised simplicity gains are yet to be seen in many countries.

In analyzing the generally unsatisfactory impact of value added taxation on revenue collection in the least developed countries,[87]the focus of experts has largely been on institutional capacity, since “tax administration decisions and practices—as much as declared tax policies and legislation—shape how taxation affects different groups of taxpayers.”[88] Faced with the failure of governments to significantly enhance their revenues even in “reformed” systems, tax policy advisers focus heavily on these administrative decisions and practices.[89 ] Failure to achieve benchmarks has been attributed to weakness in capacity or desire on the part of governments to implement the rules in a fair and forthright manner.[90 ] The underlying factors that constrain the options available to least developed countries in designing their tax systems often seems to be a background issue if it is discussed at all.

The consensus that developing countries cannot impose tax effectively appears to create its heaviest constraint on tax policy design when it directs scarce administrative resources toward the externally favored regime.[91] This can be a particularly limiting constraint for countries that rely upon international financial institutions to provide technical and financial support for tax administration. Perhaps because they agree with the international consensus regarding the relative weakness of states in successfully taxing by other means,[92] or perhaps because of the great confidence in value added taxation in particular, the experts in these institutions have focused their efforts on the administration of value added taxation more heavily than on income or other tax administration efforts.[93]

The result is that institutional assistance may be available primarily or only to support tax policy strategies that are favored by the international community of finance experts.[94] A major challenge for the recipients of outside expertise is that while the experts may be able to learn from and change their prescriptions based on experience across countries, the countries themselves may not be able to adapt their legal systems easily, especially after pushing through prior, often unpopular, reforms.[95] As one well- regarded economist notes, “No one keeps count of the opposition politicians who promise to remove a VAT if elected but then find that, unfortunately, circumstances prevent their doing so just yet.”[96]

There may be no precise method for measuring the correct balance between the need to raise revenues and the need to foster growth in a competitive global economy.[97] But it seems shortsighted to draw conclusions based solely on an analysis of internal administration and institutional efforts. The fiscal challenges posed to all nations by dynamic global trends, and the extent to which various nations can change these trends, must also be measured as policymakers consider what direction tax system design will or can take in an increasingly fiscally integrated world. These existing global tax trends represent several decades of policy choices made by developed countries about how to allocate tax burdens within their societies while protecting and adding to their share of the increasingly global market for trade and capital. The question remains whether these trends are simply to be noted with admiration or regret or a mixture of both, or whether policy prescriptions can or should be made in response.[98] It seems clear that prescriptions for tax policy reform in the least develop countries is an ongoing project. But it seems imperative to take a globalized approach to tax reform that considers alternative approaches to the challenges of taxation in a global economy. In particular, a globalized approach would look for solutions to developed countries, as the main source of global tax policy trends, and the transnational institutions they use to develop and disseminate tax policy trends.


Developed countries play a fundamental role in setting the parameters for tax policy in the global economy, owing to their intensive participation in the international networks where tax policy becomes globalized.[99] To date, tax (and other) policy choices made in the developed world have both intensified regulatory competition and constrained policy alternatives in less developed countries.[100 ] If global tax policy constraints are to be eased, it seems clear that developed countries, whether on a unilateral or collective basis, are best situated to take the necessary steps to countervail competition, such as by imposing minimal tax standards and enforcing them on a worldwide basis.[101 ] Examining the design and evolution of tax systems in developed countries may reveal additional sources of international policy constraint and provide insights on how developed—not just developing— countries could change their own policies to increase global policy flexibility.

In the United States, the “deferral” regime is one good candidate for such an analysis. Most developed countries impose taxation on a worldwide or residence basis, but most suspend current taxation on much of the income earned through foreign subsidiaries of resident multinational companies.[102 ] The effect of this deferral is to increase the sensitivity of taxpayers to foreign tax rates.[103] This sensitivity leads multinationals to create pressure on low-income countries to respond by reducing their own taxes.[104]

Through policies like deferral, developed countries thus create an international equilibrium that favors tax competition over cooperative effort.[105] Of course changes, even significant ones, to one regime would not likely reverse the current trend toward ever greater tax competition.[106]

Even so, incremental technical changes in U.S. international tax law could have incremental effects on global tax competition. For example, in the United States, changes to the highly technical rules applying to U.S.-owned foreign entities significantly reduced the chance that foreign income earned from providing services in other countries would be subject to current United States taxation.[107] Since this income will escape tax in the

United States regardless of by whom or where the services are performed, the U.S.-based multinational group can now more easily locate its base of operations in whatever country provides the most tax-favored environment. The end result of this rule is to increase the pressure on other countries to minimize their taxation of services income earned by subsidiaries of United States companies. The importance of this type of income stream to a countries’ revenue needs is sure to be superseded by the need to use tax incentives to compete for U.S. investment against similarly situated nations.

Incremental rule changes in other regimes that affect international capital flows could similarly increase or decrease global tax competition. For instance, many developed countries have foreign tax credit rules that they can expand or contract to allow more or less of a tax credit to their resident companies.[108]

The United States generally allows cross-crediting, or mixing income that has not been taxed overseas with income that has been so taxed, and using the combined amount to lower residence-based taxation.[109] More generous cross-crediting rules tend to encourage United States-based multinational firms to seek out more lightly- taxed foreign income (such as from less developed countries) to offset existing sources of higher taxed foreign income (typically from other developed countries).[110] The decision to be more generous in allowing cross-crediting thus tends to increase the pressure on low-income countries to also be low-tax countries. Reduction of taxation in the developing world in turn, and perversely, produces an additional benefit to the developed world not only because it benefits the multinational taxpayer but also because it reduces the amount of taxation that will ultimately be forfeited by developed countries under the credit system.[111]

The implications of changes like these on smaller countries that are struggling to compete in the global economy may not be of significant political import to induce a change in strategy on the part of the United States or other developed countries. On the other hand, the interests of developed nations in protecting their own tax bases has already prompted some forms of unilateral and collective action.[112] The scrutiny of how these policies impact developing countries in meeting their own revenue goals could serve as an added impetus for developed countries to take a different approach to global competitiveness.[113]

These are but two examples of technical changes in one developed country’s tax laws that potentially exacerbate the existing problem of global tax competition.[114] There are many domestic justifications offered in support of these rules, including the need for simplification and improving the competitiveness of United States firms in the global economy.[115] Lawmakers may have little impetus to choose reforms that might reduce national advantages, especially in difficult economic times. The possibility that enhanced competitiveness for United States firms translates into an ever more intense global tax competition which unduly constrains the choices available to the world’s poorest countries may not be sufficient to compel these lawmakers to make different, more difficult, choices.

Accordingly, a different approach to policy flexibility may be necessary, namely, one that “corrects for the tendency of democratic governments to disregard the interests and preferences of those outside their own publics.”[116] This correcting ability is a characteristic often associated with global governance institutions, such as inter-governmental networks and non-governmental organizations that create spaces for sharing information and developing policy across borders. It is a potentially even more difficult approach, not least because of the sheer number of individuals, institutions, and venues where tax policy develops in incremental but important ways, but also because this approach implicates a vast array of complex issues associated with global governance institutions more generally.[117] An inquiry into the role of international institutions in creating and spreading tax policy norms will raise difficult questions about expertise, democracy, transparency, and accountability, and about the overall question of institutional legitimacy.118

One approach is to identify existing institutions that serve as the conduits for tax policy trend diffusion and analyze whether and how they can provide a greater role for and focus on the world’s least developed countries. This focus might illuminate whether and to what degree tax policy constraints can and should be addressed. Such an inquiry would almost certainly begin with the OECD, which identifies itself as a “market leader in developing tax standards and guidelines.”[119] The description implies the existence of a competitive market for tax policy, with the OECD a dominant supplier, and nations as consumers. However, it may be more accurate to view the OECD as virtually a monopoly supplier, since no other organization exists with the same influence in this market.[120] The importance of the OECD as an institution suggests that the ability of experts from the developing world to impact international tax trends may well depend on their ability to participate effectively in OECD processes.

The OECD has begun to include a few non-member states, namely Brazil, China, India, Indonesia, and South Africa, and in its policy deliberations, albeit as “observers” rather than members.[121 ] But, it has “no ambition to rival the UN” in terms of membership.[122 ] For least-developed nations, currently the best (and only) opportunity for participation in global tax policy dialogue appears to arise through the OECD’s Centre for Cooperation with Non-OECD Economies.[123] This Centre organizes some sixty conferences per year to which experts from OECD member countries meet with tax officials from nonmember countries in order to “share experiences and expertise.”[124] It is possible that these conferences may be venues for greater participation in global tax dialogue,[125 ]although to date there is little evidence that developing country expertise is influencing the policies emerging from the OECD’s work.

Other existing international tax institutions, such as the International Fiscal Association, the International Chamber of Commerce, and a host of other non-government organizations that have contributed to the tax policy dialogue are good candidates for similar study, but little attention seems to have been paid to these institutions by tax scholars.[126] Finally, we may also shed light on global tax policy constraints by exploring expanding roles for institutions that have not had as much influence on tax policy, but that may have a greater history of presenting a forum for exploring the interests and perspectives of the developing world in other areas. The UN appears to be a good candidate for such an inquiry, as evidenced by its recent attempts to contribute to the global debate on harmful tax competition and on tax information exchange standards.

Studying how international tax institutions operate, inquiring what role the least developed countries can and should have in their activities, and asking how each of these institutions contributes to global tax policy trends and constraints, are important tasks that appear to be gaining interest among tax scholars.[127 ] This interest may itself lead to differences in tax policy development, as the existence of an increasingly interested and studious community external to the international institutions could contribute to the responsiveness of the key institutions to different interests and perspectives.[128] To date, tax scholars have done much to explore the impact of globalization on tax rules, and to explore some of the implications of the existing international regime on the world’s poorest people.[129] A greater focus on the particular international institutions of tax policy design could help advance the inquiry into how tax policy norms arise, become trends, and ultimately come to constrain policy choices in the least developed countries.


Success in building an economy is integral to building and maintaining a successful state: revenue needs must yield to this relationship without destroying either component.[130] Similarly, success in developing global tax policy norms could alternatively invigorate or constrain effective legal change.[131] Focusing on the emergence and influence of global tax trends is one way to consider how high-income countries’ international tax regimes influence tax policy choices in low-income states.[132]

It is not a new idea that states’ ability to tax is challenged and constrained by economic theory and the need to compete in the global economy. Allowing trade to escape taxation, regardless of the economic merits, both narrowed the tax base in less developed countries and paved the way for further narrowing. The original crafters of free trade theory may have recognized that tax bases would have to be broadened to make up for lost revenues,[133] but perhaps did not anticipate just how much more difficult it would be to broaden the base once the door was intentionally opened for some factors to escape. This phenomenon seems especially problematic for the least developed countries, which are integrally dependent on foreign trade and investment and tied to international consensus through their relationships with outsiders such as international lenders and major trading partners.

In the face of failure to achieve revenue and development goals, much of the attention in policy circles seems squarely on administrative capacity rather than whether the underlying principles are still (or were ever) appropriate. Within international tax policy discussions is embedded an overwhelming acceptance of international constraints on governments’ ability to tax. But the principles of freeing trade and investment from taxation are not impermeable to further examination, and the failure of value added taxation to provide the expected results also suggests that further reflection is fundamentally needed.

International tax policy formulation has almost exclusively been the purview of experts from developed countries, despite periodic efforts to achieve some measure of participation by less developed countries. As a result, the economic, social, and legal context of these less developed countries may be too easily overlooked as international consensus evolves regarding the strategies nations should employ to raise revenues in the context of a global economy. Decisions made by and for the developed world about how to foster and encourage globalization through international tax policy limit the range of tax policy strategies available to the world’s least developed countries. A more global view would examine the expectations and assumptions that continue to constrain the design of tax policy in these nations.

[∗]Assistant Professor, University of Wisconsin Law School. I would like to thank Hugh Ault, Kim Brooks, Howard Erlanger, Nan Kaufman, Michael McIntyre, the participants at the “Tracking Our Fiscal Footprint” Workshop, McGill University (October, 2008), and two anonymous referees for their helpful comments and suggestions on earlier drafts.

[1 ] They have done so largely by creating an international architecture of transnational public and private sector institutions, such as the former League of Nations and the Organisation for Economic Cooperation and Development (OECD), that facilitate cross-border emulation and collaboration. See generally, ANNE-MARIE SLAUGHTER, A NEW WORLD ORDER (Princeton Univ. Press 2004); Allison Christians, Networks, Norms, and National Tax Policy, XX Wash. U. Global Studies L. Rev (forthcoming 2010), available at (showing how nations use international tax networks like the OECD to share expertise and experience, emulate each other, and pressure each other to achieve common tax goals); Michael Graetz & Michael O’Hear, The Original Intent of U.S. International Taxation, 46 DUKE L. J. 1021, 1066-1077 (1997) (describing formation of League of Nations and its early focus on tax policy); About OECD,,3417,en_36734052_36734103_1_1_1_1_1,00.html (describing collaborative function of the OECD). The degree of collaboration and cooperation varies over time and depends on multiple domestic and international political, social, and economic factors. See, e.g., Paola Conconi and Nicolas Sahuguet, Policymakers’ Horizon and the Sustainability of International Cooperation, 93 J. PUB. ECON. 549 (2009) (political structures such as term limits and potential for turnover in government positions may lead policymakers to greater international cooperation).

[2]The United Nations Economic and Social Council defines least developed countries as those with the lowest measures of socioeconomic development, including low GNI per capita, weak standards for health and nutrition, and high economic vulnerability. As of 2009, the UN list contains 50 nations: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Laos, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan, Tanzania, Timor-Lesté, Togo, Tuvalu, Uganda, Vanuatu, Yemen, and Zambia. Two thirds of these nations are in Sub-Saharan Africa. See, The Criteria for the Identification of the LDCs, (last visited June 9, 2009). Alternatively, the U.S. CIA defines the term as “that subgroup of the less developed countries (LDCs) initially identified by the UN General Assembly in 1971 as having no significant economic growth, per capita GDPs normally less than $1,000, and low literacy rates; also known as the undeveloped countries.” U.S. CIA, World Factbook, Appendix B, International Organizations and Groups, at appendix/ appendix-b.html#L (last visited June 9, 2009). The U.S. list includes 42 nations, including all of those listed on the UN website except for Angola, Cambodia, Democratic Republic of the Congo, Liberia, Madagascar, Myanmar, Senegal, Timor-Lesté, and Zambia, and adding Botswana and Burma to the list. In the U.S. list, 28 of the 42 countries, again two thirds, are Sub-Saharan African nations. For purposes of the present analysis, it seems sufficient to suggest that the world’s least developed countries are the world’s poorest, as measured by general socioeconomic indicators, and would likely include all of the countries on both the UN and CIA lists, as well as perhaps several others. This Article makes specific reference to Sub-Saharan Africa because this region represents the overwhelming majority of the world’s least developed nations.

[3 ] For example, none of these countries are members of the OECD, a thirty member inter-governmental organization that serves as the main source of international tax policy norm development. See, e.g., Arthur J. Cockfield, The Rise of the OECD as Informal ‘World Tax Organization’ Through National Responses to E-Commerce Tax Challenges, 8 YALE J.L. & TECH. 136, 139 (2006); John F. Avery Jones, Are Tax Treaties Necessary?, 53 TAX L. REV. 1, 2 (1999) (stating that the OECD is the “world body” for international tax matters).

[4 ] This is not to suggest that tax norms developed in international circles are adopted wholesale in the least developed countries—domestic policy spaces continue to exist and inform the content and form of substantive tax rules. For a discussion of the complexities involved in the import and export of legal regimes, see Yves Dezalay and Bryant Garth, THE INTERNATIONALIZATION OF PALACE WARS: LAWYERS, ECONOMISTS, AND THE CONTEST TO TRANSFORM LATIN AMERICAN STATES (University of Chicago Press 2002). [Cite for meaning of “trend”

[5] See, e.g., Miranda Stewart, Global Trajectories of Tax Reform: The

Discourse of Tax Reform in Developing and Transition Countries, 44 HARV. INT’L L.J. 139 (2003).


(WorldBank 1997).

[7] The object is to “go beyond the dominant beliefs, assumptions and loyalties (the myth) of any given society and look into its operational technique,” in order to reappraise the appropriateness of existing practices. Myers S. McDougal and Harold D. Lasswell, The Identification and Appraisal of Diverse Systems of Public Order, 53 Am.J.Int’l L.1, 13 (1959).

[8] By “trends,” I refer to “the present distribution of goals sought, the degree of their contemporary realization, and the extent to which this realization has become greater or less through time.” McDougal supra note 14 at 13.

[9 ] See, e.g., MARTHA C. NUSSBAUM, FRONTIERS OF JUSTICE: DISABILITY, NATIONALITY, SPECIES MEMBERSHIP (2006) (discussing the need to identify institutions to which individuals can delegate authority to act on desirable goals).

[10] The impact of this trend can be heightened by traditional modes of allocating taxation among jurisdictions, according to a model tax convention drafted by the OECD. This model generally prioritizes the right to taxation to the country from which capital investment originates (the home, or residence country) over the country in which the investment is made (the host, or course country). This allocation works quite well between roughly equal partners, since each will act as host and home country in a generally reciprocal manner. However, the allocation tends to work to the disadvantage of less developed countries since they generally act as host countries, and not as home countries. The impact of the international tax treaty network on less developed countries, while beyond the scope of the present analysis, has been explored in previous work. See Allison Christians, Tax Treaties For Investment and Aid to Sub- Saharan Africa: A Case Study, 71 BROOK. L. REV. 639 (2005); Karen Brown, Missing Africa: Should U.S. International Tax Rules Accommodate Investment in Developing Countries? 23 U. PENN. J. INT’L Eon. L. 45 (2002).

[11] See, e.g., Scott Riswold, IMF VAT Policy in Sub-Saharan Africa, 33 TAX NOTES INT’L 385 (2004) (documenting the spread of value added taxation through IMF loan conditionality); see also Stewart, supra note 5.

[12] The popularization of free trade has been accomplished primarily through the General Agreement on Tariffs and Trade (GATT), to which 147 countries are current signatories through the World Trade Organization. Non- taxation of trade is, of course, only one component of free trade, but the one which most obviously implicates national tax policy.

[13] Recent developments may be slowing the trend, as a renewed interest in protectionism appears to be on the rise in many countries, including the United States. See, e.g., European Commission, REPORT ON POTENTIALLY TRADE RESTRICTIVE MEASURES (June 12, 2009), at (last visited June 12, 2009) (noting that “trade restrictive measures continue to be on the rise, including in some G20 members,” and emphasizing stimulus-related measures such as “Buy American” legislative proposals).

[14] See e.g., Ajay K. Mehrotra, Envisioning the Modern American Fiscal

State: Progressive Era Economists and the Intellectual Foundations of the U.S. Income Tax, 52 UCLA L. Rev. 1793 (2005) (“in 1880, 90 percent of [U.S.] federal government revenues came from the combination of customs duties (56 percent) and internal excise taxes (34 percent)”); Steven R. Weisman, THE GREAT TAX WARS 14, 42, 44 (2002) (“In the 1850s, the [U.S.] federal government obtained 92 percent of its revenues from customs duties imposed on goods imported from abroad”); William D. Samson, History of Taxation, in THE INTERNATIONAL TAXATION SYSTEM 33-37 (2002) (same); William J. Federer, THE INTERESTING HISTORY OF INCOME TAX 7, (2004) (Tariffs and excise taxes constituted the bulk of U.S. tax revenues from 1789 through World War I).

[15] See, e.g., Michael Keen and Alejandro Simone, Tax Policy in Developing Countries: Some Lessons from the 1990s, and Some Challenges Ahead, In HELPING COUNTRIES DEVELOP: THE ROLE OF FISCAL POLICY 302 (2004) (stating that “revenue recovery [replacing trade taxes with other forms of taxation] has been extremely weak in low-income countries (which are those most dependent on trade tax revenues)”).

[16 ] Consensus on free trade emerged from the gatherings of experts at Bretton Woods who created the General Agreement on Tariffs and Trade. Bretton Woods Agreements Act, (1945). Consensus notwithstanding, the rapid transition of the United States from an agrarian society “rich in resources but lacking in capital investment” to an industrial one is credited in part to the protective nature of tariffs. See Weisman, supra note 14 at 14; Federer, supra note 14 at 23 (protective tariffs contributed to rapid industrialization and “unprecedented” growth in the U.S. economy); William A. Lovett, Alfred E. Eckes Jr. & Richard L. Brinkman, U.S. TRADE POLICY: HISTORY, THEORY, AND THE WTO 45 (2004) (finding the association of free trade with rapid economic growth “incompatible with American economic history,” which shows that “the most rapid growth occurred during periods of high protectionism”).

[17 ]John Williamson, What Washington Means by Policy Reform, in LATIN

AMERICAN ADJUSTMENT: HOW MUCH HAS HAPPENED? (Williamson, ed., 1990). Williamson described a set of ten policies he observed as being generally advocated by the economic agencies of the United States government and the international financial institutions in Latin America. The term has come to represent, perhaps contrary to Williamson’s original intentions but nevertheless the widespread view, “a comprehensive agenda for economic reform.” See John Williamson, The Strange History of the Washington Consensus, 27 J. OF POST KEYNESIAN ECON. (2004).

[18] See, e.g., Alan J. Auerbach, Who Bears The Corporate Tax? A Review Of What We Know (2005),; Alan J. Auerbach, Michael P. Devereux & Helen Simpson, Taxing Corporate Income, No. 14494 National Bureau of Economic Research Working Paper Series (2008),; Martin Feldstein, Effects of Taxes on Economic Behavior, 61 NAT’LTAXJ. 131(2008).

[19 ]See, e.g., Anwar Shah and John Whalley, Tax Incidence Analysis of Developing Countries: An Alternative View, 5 WORLD BANK ECON. REV. 535 (1991) at 548 (noting particularly that assumptions economists make about the distortionary effects of particular types of taxes might not translate well to less developed countries).

[20] See, e.g., DEIRDRE N. MCCLOSKEY, THE RHETORIC OF ECONOMICS (1998) (discussing the literary, persuasive, and ideological components of economic methods); RICHARD M. BIRD, TAX POLICY AND ECONOMIC DEVELOPMENT 50-52 (1992) (expressing a lack of confidence in the logical and statistical bases of incidence studies).

[21] See Katrin Jordan-Korte and Stormy Mildner, Climate Protection and Border Tax Adjustment: Economic Rationales and Political Pitfalls of Current U.S. Cap-and-Trade Proposals, FACET Analysis No. 1 (June, 2008), available at (last visited June 9, 2009); Ben Lockwood and John Whalley, Carbon Motivated Border Tax Adjustments: Old Wine in Green Bottles?, NBER Working Paper No. 14025 (May, 2008), available at (last visited June 9, 2009); Ralph Nader and Toby Heaps, We Need a Global Carbon Tax, Wall Street Journal,Dec.3,2008.

[22] See, e.g., Rep. John Dingell, Summary of Draft Carbon Tax Legislation at (last visited June 9, 2009) (describing current initiatives on carbon taxation in the United States);, Cap & Trade and

Carbon Tax Legislation, at (last visited June 9, 2009) (describing the numerous climate change bills in the 110th Congress);, Britain and U.S. up in arms against EU carbon tax, at tax/article-169790 (last visited June 9, 2009).

[23]John Hontelez, Time to Tax the Carbon Dodgers, BBC News Thursday, Apr. 5, 2007, available at

[24]See, e.g., Michael Keen, What Do (And Don’t) We Know About the Value Added Tax? A Review of Richard M. Bird and Pierre-Pascal Gendron’s The VAT in Developing and Transitional Countries, 47 J. ECON. LIT. 159 (2009) (value added and carbon taxes are favorites of economists because both are “externality correcting devices”).

[25]The removal of one cost—trade taxation itself—may be seen to magnify the need to compete to reduce these other costs. See, e.g., Radhika Balakrishnan, Why MES With Human Rights? Integrating Macro-Economic Strategies With Human Rights 25 (“when labor regulations are better enforced in one country, [transnational corporations] seek out environments more conducive to profit making. This mobility makes it difficult to hold [these corporations] accountable for labor rights violations”).

[26]The Shrimp-Turtle dispute refers to a WTO arbitration brought by India, Malaysia, Pakistan, and Thailand against the United States after the United States banned the importation of shrimp that were harvested by vessels that did not employ Turtle Excluder Devices (TEDs) or similar technology or practices to prevent the inadvertent killing of sea turtles, an endangered species. United States—Import Prohibition of Certain Shrimp and Shrimp Products (Shrimp- Turtle I), 38 I.L.M. 118 (1999); United States—Import Prohibition of Certain Shrimp and Shrimp Products (Shrimp-Turtle II), 41 I.L.M. 149 (2002). U.S. vessels employed TEDs pursuant to U.S. regulations, so the ban was seen as effectively an attempt by the United States to impose on other nations its own environmental standards with respect to sea turtles. The Tuna-Dolphin dispute refers to a arbitration brought by Mexico against the United States after the United States imposed similar restrictions for dolphin-safe tuna harvesting practices. GATT Dispute Settlement Panel Report on United States Restrictions on Imports of Tuna (Tuna-Dolphin I), 30 I.L.M. 1594 (1991); GATT Dispute Settlement Panel Report on United States Restrictions on Imports of Tuna (Tuna-Dolphin II), 33 I.L.M. 839 (1994).

[27]Shrimp-Turtle I at ¶¶ 7.40, 7.42 (“while environmental considerations are important for the interpretation of the WTO agreement, the central focus of that agreement remains the promotion of economic development through trade; and the provisions of GATT are essentially turned toward liberalization of access to markets on a non-discriminatory basis. Therefore we are of the opinion that [WTO law] only allows Members to derogate from GATT provisions so long as, in doing so, they do not undermine the WTO multilateral trading system.”).

[28] Shrimp-Turtle I at ¶ 166 (the failure of the United States to pursue bilateral or multilateral agreements on specific environmental goals “bears heavily in any appraisal of justifiable or unjustifiable [trade] discrimination”).

[29]Commentary on the possible WTO challenges to carbon taxation support this view. See, e.g., Alan Beattie and Kathrin Hille, China joins carbon taxprotest, FIN. TIMES, Jul. 3, 2009, at (last visited July 3, 2009) (“A recent report by the World Trade Organisation and the UN said [carbon] taxes could in theory be crafted to be compatible with WTO law, but it would be hard to prove they were not an illegal disguised restriction on international trade”); David Stanway, China says “carbon tariffs” proposals breach WTO rules, REUTERS, Jul. 3,2009 at GreenBusiness/idUSTRE5620FV20090703 (last visited July 3, 2009) (“In a statement posted on its website, the ministry said collecting carbon duties from foreign products would enable developed countries to ‘protect trade in the name of protecting the environment’”).

[30 ]For a discussion of the potentially expansive reach of WTO law on taxation, see Michael Daly, WTO Rules on Direct Taxation, 29 WORLD ECON. 527 (2006).

[31]Even countries that are not WTO members adhere to free trade principles, in some cases because of other international relationships. For example, Ethiopia, an observer but not a member of the WTO, cites tariff reduction as one of its primary policies under its structural adjustment lending with the International Monetary Fund. See

[32] See, e.g., Keen and Simone, Tax Policy in Developing Countries supra note 15.

[33]Joel Slemrod, Competitive Advantage and the Optimal Tax Treatment of the Foreign-Source Income of Multinationals: The Case of the United States and Japan, 91 AM. J. TAX POL’Y 113 (1991) (“It is nothing new to hear that taxes on business reduce the incentive to invest and innovate, and are therefore detrimental to a nation’s economy”). OECD COMMITTEE ON FISCAL AFFAIRS, MODEL TAX CONVENTION ON INCOME AND ON CAPITAL, 2005 ed. (2005) at 7; Mihir A Desai & James R. Hines Jr., Old Rules and New Realities: Corporate Tax Policy in a Global Setting, 57 NAT’L TAX J. 937, 957 (2004) (taxation of foreign income impedes productivity of U.S. firms abroad as well as investment in the United States); James R. Hines Jr., CORPORATE TAXATION 8 (2001) (“Corporate taxation increases the cost of producing corporate output….”).

[34]For example, at a recent conference, the Director of the OECD’s Centre for Tax Policy and Administration stated that countries wishing to pursue pro-growth tax strategies should “avoid like hell” both corporate taxation andprogressive income taxation. Statement of Jeffrey Owens, The OECD’sEvolving Role in Shaping International Tax Policy, Washington D.C., June 2,2009. See also Thomas F. Field, If the Corporate Tax Has No Future, Is Tax Competition a Threat?, 2000 WTD 42-1 March 1, 2000 (at a Canadian Tax Foundation conference, a panelist “invited attendees to ‘pick the date on whichthe last OECD member country will abolish the corporate income tax.” One conference speaker “bet on 10 years from now,” while another suggested 20, adding that “[t]he corporate income tax is in deep trouble, … and I think there are genuine questions as to whether it can survive 20 years.”); Roger H. Gordon, Can Capital Income Taxes Survive in Open Economies, 47 J. FIN. 1159 (1992) (suggesting that they cannot); Bev Dahlby, Globalization and the Future of the Corporate Income Tax, ATAX Discussion Paper #9, available at (globalization puts downward pressure on corporate income taxation and may lead to abandonment of foreign tax credit system in favor of exemption system as capital is increasingly invested abroad).

[35]See, e.g., H. David Rosenbloom, Cross-Border Arbitrage: The Good, the Bad, and the Ugly, 85 Taxes 115 (2007) (arguing that “there are and probably always will be innumerable situations in which cross-border income is earned with no tax imposed by any jurisdiction” because most countries choose not to exercise their full jurisdiction to tax, whether on a residence or source basis, and even if they did, opportunities abound for taxpayers to use creative planning to escape such efforts).

[36]See, e.g., Bird (1994) at 70 (“That part of the potential tax payer universe that is not encompassed in the existing systems—such as the notorious “foreigners”—seems unlikely to be captured in any new system either”).

[37] Cordia Scott & Sirena J. Scales, Tax Competition Harms Developing Countries,IMF Official Says,2003WTD 238-9(Dec. 10,2003).

[38] World Bank, Export Processing Zones in Sub-Saharan Africa (Oct., 2001).

[39] See, e.g., Craig Boise and Andrew P. Morriss, Change, Dependency, and Regime Plasticity in Offshore Financial Intermediation: The Saga of the Netherlands Antilles (March 25, 2009), U. Il. Law & Economics Research Paper No. LE08-020, available at (forthcoming, 45 TEX.INT’LL.J.(2010).


[41] With the termination of these treaties in the 1980s and the repeal of withholding taxes on portfolio interest, the indirect route to tax-free interest from the United States was replaced by a direct route which was further facilitated by financial and technological innovations that emerged on a broad scale in the late 1980s. See Mitchell B. Weiss, International Tax Competition: An Efficient or Inefficient Phenomenon?, 16 AKRON TAX J. 99, 108 (2001) (discussing the repeal of withholding taxes on interest and capital gains and the impact of technological advances on the ability to mobilize capital flows).

[42] Of course, correlation is not causation. However, many observers view the U.S. decision on portfolio interest to have initiated a global trend. See, e.g., Vito Tanzi, TAXATION IN AN INTEGRATING WORLD 130-131 (1995) (Following the United States, by 1993, each of Belgium, Denmark, France, Germany, Ireland, Luxembourg, Netherlands, Spain, and the United Kingdom exempted foreign-owned interest earned from domestic bank accounts); see also Mitchell B. Weiss supra note 41 at 108 (citing Tanzi and stating that “not surprisingly, one country after the next responded in kind, introducing measures that not only discouraged the outbound migration of their country’s capital, but also encouraged the importation of large amounts of capital from higher-taxing

jurisdictions. Some countries created tax-exempt domestic investment opportunities; some relaxed their enforcement efforts; but most followed the U.S.’s lead, exempting their withholding tax on imported interest income and substantially cutting their corporate and individual tax rates.”). The U.S. move was itself in response to competition from the tax-free Eurobond market. See Boise and Morriss, supra note 39.

[43] For an early report, see JOHN WILLIAMSON AND DONALD R. LESSARD, CAPITAL FLIGHT AND THIRD WORLD DEBT (Institute for Int’l Econ., 1987); see also Reuven Avi-Yonah, Globalization, Tax Competition, and the Fiscal Crisis of the Welfare State, 113 HARV. L. REV. 1573 (2000); Weiss, supra note 41 (“In 1983, just one year before Congress abolished its interest income and capital gains withholding tax, the Bureau of Economic Analysis… reported … $ 17.8 billion in net foreign purchases of U.S. private and public securities. The next year, this figure jumped 226 percent to $ 40.3 billion. . . . Since 1995, net foreign portfolio purchases have increased over 333 percent, from $ 91.2 billion to $ 304.1 billion; and over this same time period, foreign direct investment has registered spectacular gains, increasing over 680 percent, from $ 41.4 billion in 1995 to $ 282.5 billion in 1999.”). But see Tanzi, supra note 42 (stating that capital flight from Latin America occurred not “because of actions by other countries but because of what was happening within the Latin American countries,” but also noting that because of U.S. policy, “many Latin American countries feel that they cannot tax interest income”).

[44] Tanzi, supra note 42.

[45] The downward trend on corporate tax rates is well-established, especially within the member countries of the OECD. See, e.g., Treasury Dep’t News Release, No. HP-500, Treasury Releases Business Taxation and Global Competitiveness Background Paper (July 24, 2007) (“Since 1980, the United States has gone from a high corporate tax-rate country to a low rate country (following the Tax Reform Act of 1986) and, based on some measures, back again to a high-rate country today because other countries recently have reduced their corporate tax rates . . . . The evolution of OECD tax rates over the past two decades suggests that [corporate income tax] rate setting is an interactive game subject to the pressures of international competition.”); Eoin Callan, Greenspan Warns on Borrowing Costs, FIN. TIMES (London) July 27, 2007 (quoting former Federal Reserve chairman Alan Greenspan, “Other nations have seen the results of the bold tax reforms enacted by the US in the 1980s and they have moved to follow our example. And with much of the world having reduced their corporate rates, we now have the second highest statutory corporate tax rate among OECD nations.”); Henry M. Paulson, Jr., Our Broken Corporate Tax Code, WALL ST. J., July 19, 2007 (“Over the past two decades, while . . . our statutory corporate income tax rate has increased, other nations have been reducing their rates to replicate our miracle . . . . It’s not surprising then, that average OECD corporate tax rates have trended steadily downward.”).

[46] For a discussion of the mechanisms for engaging in tax competition, see Auerbach, supra note 18.

[47] For a U.S. example of the free zone approach, see I.R.C. §§ 1400L through 1400S, providing special tax incentives for the “New York Liberty” and the “Gulf Opportunity” zones. Most of the nations in Sub-Saharan Africa have one or more free zones already in place or under development. For a discussion, see Christians supra note 10. The OECD has undertaken the project of assessing when a tax incentive regime itself presents a distortion, rather than relieving one. See OECD, HARMFUL TAX COMPETITION: AN EMERGING GLOBAL ISSUE (April 27-28, 1998), and subsequent reports, available at

Allison Christians, Sovereignty, Taxation and Social Contract, 81 Minn. J. Int’l L. (2009) (discussing the harmful tax project).

[48] See OECD, HARMFUL TAX COMPETITION, supra note 47. Because incentives, holidays, and free zones can take a number of different forms, an exact number of such regimes is not available. However, it does seem clear that the number of these regimes is growing throughout the world. See, e.g., Herbert Jauch, Export Processing Zones and the Quest for Sustainable Development: A Southern African Perspective, 14 ENVIRONMENT & URBANIZATION 101 (2002). Among the least developed countries that have enacted or expanded free zones in the past several years are Uganda (new zone plans for 2006, discussed infra), Nigeria (expansion of incentives for export processing zone businesses in 2003), and Tanzania (new export processing zone opened in 2003). See, e.g., Adewale Ajayi, Nigerian Government Introduces Far-Reaching Tax Incentives to Lure Business Investment, Tax Analysts Worldwide Tax Daily (2003); Government of Tanzania, Registered Free Zones in Nigeria, at; Tanzania Export Processing Zones Act, 2002, available at

[49]Memorandum of Economic and Financial Policies of the Government of Uganda for 2005/06.

[50 ] Id. The free zone is to be implemented immediately, while the coordinative efforts are to be pursued in the future.

[51]Memorandum of Economic and Financial Policies of the Government of Uganda for 2005/06.

[52] For example, locating a business in any of Nigeria’s sixteen free zone areas guarantees complete exemption of all Federal, State and Local Government taxes, rates, customs duties and levies, tax-free import of goods and capital, tax free repatriation of profits, and a tax subsidy in the form of rent-free land for the first six months of operation. See “NEPZA Incentives,” at (last visited Jan. 26, 2009). Similarly, investing in one of Ghana’s eleven “priority areas for foreign direct investment” guarantees a nominally ten-year but often functionally permanent tax holiday. See discussion in Christians supra note 10 at 686.

[53] SeeKeenandSimone supra note 15; Tanzisupra note42at 215-217.

[54 ] Including payroll taxes. See Tanzi, supra note 42 at 218 (describing the emergence and growing popularity of “modern” income taxation in the 1950s and 60s, “when it became the major generator of tax revenue in most industrial countries and came to be seen as the fairest of all taxes,” and, later the rise in popularity of consumption taxation).

[55] Mick Moore and Lise Rakner, The New Politics of Taxation and Accountability in Developing Countries, 33 INSTITUTE OF DEVELOPMENT STUDIES BULLETIN 1 (2002). According to this view, multinational businesses seem to escape the category of “citizen” in many of the countries in which they operate. Despite the apparent logic of the idea that governments should only tax their own citizens, however, most countries do not base their tax jurisdiction on the basis of citizenry but on the basis of residence, which, in the case of individuals, can often be a formalistic exercise in counting mere days of presence with the borders, and, in the case of corporate entities, can be based on such factors as place of incorporation or place of management and control. See, e.g., Hugh J. Ault and Brian J. Arnold, COMPARATIVE INCOME TAXATION: A STRUCTURAL ANALYSIS 347 – 350 (2d Ed., Aspen, 2004).

[56]Originally introduced in Paris in 1954, and quickly adopted throughout Europe in the 1960s, value added taxation is in essence a sales tax levied on the purchaser of goods and services, but collected at several stages along the chain from the producer to the consumer. See discussion infra.

[57] For example, the United States imposes relatively small excise taxes on fuels as compared to other developed nations, and it is a holdout in the worldwide consumption taxation trend. Domestic politics and policy debate seem at least as, if not more, important than global practice and consensus in these matters. For a discussion of the U.S. policy debate on value added taxation, see, e.g., Michael J. Graetz, 100 Million Unnecessary Returns: A Fresh Start for the U.S. Tax System, 112 YALE L.J. 261 (2002); Avi-Yonah, supra note 62.

[58] Many scholars of taxation would agree that individual income taxation is a preferred mechanism for generating revenue. For a discussion, see, e.g., Avi-Yonah, supra note 62. Perhaps the best evidence of this consensus is the fact that individual income taxation accounts for so much of the revenues collectedin mostdevelopedcountries,asdiscussedsupra.

[59] Value added taxes can take several forms, the most common being a general tax on consumption that exempts investment expenditure and payment of wages. Most value added tax programs are destination-based: each contributor to the value of the good collects taxes in proportion to the value it adds, but only the final consumer actually bears the tax. Under this system, tax is collected and refunded at several stages, for instance from the manufacturer, wholesaler, and retailer. Hines (2003) describes the value added tax as “a sensible form of a sales tax,” since it avoids taxing intermediate sales.

[60] Keen, supra note 24 at 160; see also Stewart supra note 5; Riswold supra note 11; Richard M. Bird and Pierre Pascal Gendron, THE VAT IN DEVELOPING AND TRANSITIONAL COUNTRIES 16 (2007) (the IMF has “been the leading ‘change agent’ in tax policy in many developing and transitional countries”); Christopher Heady, Taxation Policy in Low-Income Countries, UN. WIDER Discussion Paper No.2001/81, at (IMF programs “have been a major force in determining the direction of tax reforms in low-income countries”); Thomas Baunsgaard & Michael Keen, Tax Revenue and (or?) Trade Liberalization, IMF Working Paper #05/112, at wp05112.pdf (last visited June 9., 2009).

[61] See, e.g., World Bank, World Development Report 2006: Equity and Development, published for the World Bank, Oxford University Press 2006) at 12, 176-177; Heady supra note 60 at 5 (“Any lost revenue from reducing trade taxes must be balanced by increases in tax revenues elsewhere. A common recommendation is to increase the revenue from domestic commodity taxes, which are less distortionary than trade taxes.”)

[62] For example, value added taxation was adopted in a number of countries with the hope and expectation that it would replace trade taxes, the elimination of which was expected to increase trade and lead to gains in economic growth. For an examination of the result of this strategy, see Stewart supra note5at170.

[63] Forty-one Sub-Saharan African countries adopted value added taxation regimes between 1990 and the present.

[64] In these countries, adoption of value added taxation is widely acknowledged as the product of extensive input from the IMF. For a discussion, see, e.g., LIAM P. EBRILL, MICHAEL KEEN, JEAN-PAUL BODIN AND VICTORIA SUMMERS,THEMODERNVAT (Int’l Monetary Fund 2001).

[65] Each has adopted a value added tax within the past five years.

[66] See, e.g., Djibouti: Staff-Monitored Program: Letter of Intent 9 (Aug. 4, 2005) (stating that priorities include “to adopt immediate measures and revise the timetable proposed by the technical assistance mission from the IMF Fiscal Affairs Department (FAD), with a view to introducing value added tax in Djibouti”).

[67] EBRILLETAL. THEMODERNVAT,supra note 64 at xi.

[68] See, e.g., Odd-Helge Fjeldstad and Lise Rakner, Taxation and Tax Reforms in Developing Countries: Illustrations from Sub-Saharan Africa (2003) (Value added taxation has not generally brought new groups into the tax net, nor has it demonstrably improved revenue generation); FAMBON, TAXATION IN DEVELOPING COUNTRIES supra note 73 at 8, tbl. 2 (showing that in Cameroon, personal income taxes have risen and non-value added taxes on goods and services and tariffs have remained steady as a percentage of tax revenue since the VAT was introduced in 1998; the VAT collects the same amount of revenue that had been collected under the turnover tax, and only corporate income taxes have dropped.); Memorandum of Economic and Financial Policies of the Government of Rwanda, March 25, 2005 (despite adoption of VAT, revenue losses have occurred due to a reduced reliance on income taxes and tariffs; excise taxes are expected to make up the difference); ISSER (2002) at 26, 28-29 tbl.2.4 (showing that in Ghana, decreases in international trade and excise taxes were initially realized soon after introduction of VAT, but this trend has since reversed itself: tariffs are currently increasing as a percentage of total revenues collected, with the remainder of Ghana’s tax revenue deriving from excise taxes, mainly on petroleum); M. Shahe Emran and Joseph E. Stiglitz, On Selective Indirect Tax Reform in Developing Countries, 89 J. PUB. ECON. 599 (2005) (finding that adopting VAT produced few or no gains in revenue coupled by losses in distributional equity); Choifor I. Saahdong, Indirect Tax Reforms and Revenue Mobilization in Cameroon (2008), available at (last visited June 9,

2009) (in Cameroon, “VAT remains rigid to revenue mobilisation after the 1999 tax reform”). But see Keen, supra note 24 (forthcoming report suggests that countries with a VAT tend to raise more revenue than those without, “though this is less marked in Sub-Saharan Africa thanelsewhere”).

[69] Birdand Gendron supra note60.

[70 ] Keen, supra note 32 at 162 (“It is largely a matter of judgment as to when … [a turnover tax with a crediting mechanism] becomes systematic enough for the tax to be labeled a VAT”); Robin Barlow and Wayne Snyder, The Tax That Failed: The VAT in Niger, 14 PUB. BUDG. & FIN 77, 78 (1994) (explaining the crediting feature as the distinction between value added taxation and traditional turnover taxes).

[71] The persistence of the U.S. refusal to adopt value added taxation in line with the global trend has been the source of so much debate and controversy, experts have begun to refer to it as “the tax that dare not speak its name” at tax conferences and workshops in the United States. See, e.g., Statements of panelists and commentators, The OECD’s Evolving Role in Shaping International Tax Policy, Washington D.C., June 2, 2009 (notes on file with the


[72] Many other countries experienced similar issues in adopting value added taxation. See, e.g., Barlow and Snyder supra note 70 (describing Niger’s failure to raise more revenues when it substituted its turnover tax regime with value added taxation).

[73] See generally N.K. KUSI, TAX REFORM AND REVENUE PRODUCTIVITY IN GHANA (1998); George O. Assibey-Mensah, The Value Added Tax in Ghana, 19 PUB. BUDG. & FIN. 76 (1999); SAMUEL FAMBON, TAXATION IN DEVELOPING COUNTRIES:CASESTUDYOFCAMEROON(2006); Saahdongsupra note 68.

[74] N.K. Kusi supra note73;Assibey-Mensah supra note 73.

[75] N.K. Kusi supra note73.

[76] Id.

[77] Id.

[78] Assibey-Mensah supra note 73 (describing several reasons for the failure of the VAT, including “rivalry between the new VAT Service and the [Customs Excise and Preventative Service] [which] adversely affected the execution of the tax”); see also Christians supra note 10 (describing protest and riots that occurred when Ghana implemented VAT in 1995). Cameroon’s value added tax was similarly implemented after two attempts. See Fambon supra note 73. Public resistance to value added taxation is not limited to developing countries however; in France, it is said to have taken the tax fifteen years to acclimate. Carl Shoup, Choosing Among Types of VATs, in Malcoml Gillis, Carl Shoup, and Gerardo Sicat, eds., VALUE ADDED TAXATION IN DEVELOPING COUNTRIES (World Bank 1990).

[79] See Christianssupranote10.

[80] Fambonsupranote 73.

[81] Saahdong supra note 68at9.

[82] Fambon supra note 73; Saahdong supra note 68 at 9 (“The full implementation of the VAT to replace the [turnover tax] in January 1999 was one of the most important tax reforms in the country”).

[83] Like Ghana, Cameroon’s introduction of the value added tax in 1998 replaced a number of existing turnover and excise taxes under the “simplification” umbrella, yet the new system incorporated multiple exemptions, rates, and surcharges. Fambon supra note 73; Assibey-Mensah supra note 73. One reason value added taxation is consistently advocated is its purported ease of administration and collection. It has even been described as “self-enforcing.” See Ebrill et al. supra note 64 at xi (describing the IMF’s “seemingly uncontentious [sic] prescriptions” for advocating value added taxation in borrowing states); Heady supra note 60 at 5 (describing self-enforcing aspects of value added taxation). However, value added taxation has been perceived by some to increase administrative burdens in poor countries. See, e.g., Barlow and Snyder supra note 70.

[84] The failure of value added taxation to replace the revenues collected under prior turnover tax systems led some scholars to question whether the turnover taxes were viable taxes after all. See, e.g., Barlow and Snyder supra note 70 at 86 (“The turnover taxes functioned reasonably well for several decades and were well understood. Administratively, they were less demanding than the VAT….”).

[85 ] See, e.g., Graham Holland, Planning For VAT, in Alan A. Tait, VALUE- ADDED TAX: ADMINISTRATION AND POLICY ISSUES 23 (IMF 1991) (describing a list of transition issues for VAT implementation); Christina D. Romer and David H. Romer, The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks, NBER Working Paper # 13264 (2007) (arguing that while measurement is difficult, “tax changes have very large effects on output”); Duncan Bentley, TAXPAYERS’ RIGHTS: AN INTERNATIONAL PERSPECTIVE 12 (1998) (“it can take generations to define the parameters of a [tax] system”). The failure to account for the cost of transition may have led to the failed effort to introduce value added taxes in Ghana in 1995. Assibbey- Mensah supra note 73 at 82-84 (“put simply, a number of bottlenecks were experiences in establishing an effective machinery to administer the tax”).

[86 ] See, e.g., Barlow and Snyder supra note 70 at 85-86. In a similar example, the government of Cape Verde proclaimed that “the new VAT was successfully implemented in January 2004, replacing a multiplicity of specific consumption taxes and thereby leading to a more efficient and broader-based tax regime.” Cape Verde: 2005 Article IV Consultation, Sixth Review Under the Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criterion—Staff Report, IMF Country Report No. 05/320 9 (Sep., 2005). The enthusiasm of certain private sector groups has been an important, but under- studied, aspect of the move to consumption taxation. See, e.g., Bentley supra note 85 at 28 (describing the efforts of the Institute of Chartered Accountants in Australia in bringing about a value added tax system there).

[87] Seesupra note68.

[88] Odd-Helge Fjeldstad, Tax Evasion And Fiscal Corruption: Essays on compliance and tax administrative practices in East and South Africa 3 (2006) at

[89 ] See, e.g., Barsha Khattry, Fiscal Faux Pas?: An Analysis of the Revenue Implications of Trade Liberalization, 30 World Development (2002); Moses K. Muriithi and Eliud D. Moyi, Tax Reforms and Revenue Mobilization in Kenya (2003).

[90] See, e.g.,Khattry supranote 89.

[91 ] Tax policy experts have long questioned the ability of impoverished nations to effectively collect taxes. See, e.g., Nicholas Kaldor, Will UnderdevelopedCountries Learn to Tax?,41FOR.AFF.410 (1963).

[92] For example, one IMF representative argued that the IMF focuses on value added tax because the developing countries of Sub-Saharan Africa are incapable of collecting other taxes, the evidence of which was visible in a photograph of an apparently abandoned customs checkpoint. Statement by Victoria J. Perry, International Network for Tax Research Conference on Taxation and Development (Ann Arbor, November, 2006) (notes on file with the author).

[93] For a discussion of the potential limitations of expert-driven policy reform, see Bird and Gendron, supra note 60 (suggesting that the efficacy of expert opinion depends heavily on the experience of particular experts).

[94]For example, in documentation regarding fiscal assistance it was requesting from the IMF, the Federal Islamic Republic of Comoros noted that it was able to significantly expand indirect taxation owing to technical assistance it received from this institution. Union of the Comoros: Staff-Monitored Program: Letter of Intent and Memorandum of Economic and Financial Policies, March 31, 2006.

[95] See, e.g., Scott Basinger and Mark Hallerberg, Internationalization And Changes In Tax Policy In OECD Countries: The Importance Of Domestic Veto Players, 31 COMP. POL. STUDIES 321 (1998); Scott Basinger and Mark Hallerberg, Competing for Capital: The Effects of Veto Players, Partisanship, and Competing Countries’ Domestic Politics on Tax Reform, 98 AM. POL. SCI. REV. 261 (2004).

[96]Keen,supranote 24at167.

[97] Lenders and donors expect objective measurements, countries oblige by furnishing data sets, and the data is closely scrutinized for clues about the efficacy of the programs implemented, even though the value of the data varies. For example, in the case of Malawi, the International Monetary Fund reported that “statistics on national accounts, trade and fiscal data are very weak and hamper economic analyses.” Even so, this data was used to point out weaknesses and require further reforms in that country. Malawi—2002 Article

IV Consultation, Concluding Statement of the IMF Mission, May 14, 2002, available at

[98] See, e.g., Alex Cobham, The Tax Consensus Has Failed!, OCGG ECONOMY RECOMMENDATION No. 9 (2007) (“The tax consensus must be consigned to history – to allow countries to re-establish policy space and put a range of options back on the table.”).

[99 ] Christians supra note 73. The OECD’s membership is almost exclusively made up of developed countries, with a few exceptions depending on the characterization of the term “developed country.” See Christians supra note 10. These countries also represent over ninety percent of the membership of IFA and about half of the participants at annual IFA conferences; the United States alone accounts for roughly 12% of both current membership and conference attendees and speakers over the period of 2002-2008. Data and analysis on file with the author.

[100] Tanzi, supra note 42 at 223 (current trends are “reducing excessively the policy maker’s discretion about the tax systems that they can have in their countries”).

[101] See Slemrod supra note 3; see also Reuven Avi-Yonah, The Obama

International Tax Plan: A Major Step Forward, University. of Mich. Working Paper 3, 5 (2009), available at (“if all OECD countries abolished deferral or exemption of income … belonging to ‘their’ [multinationals], then tax competition would cease to be a significant problem and source-based taxation of active income would once again be possible, just as it was before globalization took off in the 1980s”). The European Union Savings Tax Directive is one example of a collective effort to reset the equilibrium for the taxation of certain cross-border capital flows. See Council Directive 2003/48/EC of 3 June 2003 (requiring EU nations to either impose withholding taxes on cross-border interest payments or share information regarding the payments to the home countries of the recipients).

[102]See, e.g., Ault & Arnold, supra note 55 (stating that most developed countries impose residence-based taxation, although many (for example, Australia, Austria, and Switzerland) provide exemptions by statute or under treaty).

[103] See Robert J. Peroni, Back to the Future: A Path to Progressive Reform of the U.S. International Income Tax Rules, 51 U. MIAMI L. REV. 975, 987 (1997) (arguing that deferral “undercuts the fairness and efficiency of the U.S. tax system” by allowing profits earned overseas in low-tax jurisdictions to escape tax while equivalent domestic activities would be subject to tax). Passive income items such as dividends, interest, and royalties, are generally not eligible for deferral and are therefore subject to current tax in the U.S. See I.R.C. §§871 and 881.

[104]See, e.g.,Baunsgaard & Keen,supra note 60.

[105]International tax is in nature an open system, in which the desire to attain international unanimity is virtually certain to be outweighed by individual country preferences to develop competitive tax systems. H. David Rosenbloom, Cross-Border Arbitrage: The Good, the Bad, and the Ugly, 85 TAXES 115 (2007).

[106]See Clifton Fleming, Robert J. Peroni and Stephen E. Shay, Fairness in International Taxation: The Ability-to-Pay Case for Taxing Worldwide Income, 5 FLA. TAX REv. 299 (2001), Slemrod supra note 3 at 134. As the global abandonment of portfolio interest taxation demonstrates, it is relatively easy to initiate tax competition. Conversely, as the effort to curb “harmful” tax competition demonstrates, it is relatively much more difficult to marshal international cooperation.See Christianssupra note 73.

[107]See Notice 2007-13, revising the “substantial assistance” rules under Treasury Regulation § 1.954-4(b)(2)(ii). This section was intended to prevent United States companies from shifting profits to companies organized in low tax jurisdictions by arranging transactions so that a foreign subsidiary was the nominal service provider (for example, it might be listed as the provider on a contract) while its United States parent company provided most of the services (for example, by using its employees to provide services described as “supervisory” in nature but which actually constituted the bulk of the services to be provided under the contract). The Treasury suggested that the previous rules were too broad in the context of the increasingly integrated nature of multinational business in today’s global economy and because they force United States-based multinational companies to structure their transactions in artificial ways to avoid the reach of the current rules. Under the new rule, most service fees earned by foreign subsidiaries of United States companies can likely escape current United States taxation with a minimum of planning on the part of the United States shareholders of such companies.

[108] SeeAult &Arnold,supra note 55.

[109] The United States tax credit system generally allows for cross-crediting of taxes according to types of income (“baskets”). Citing the need to simplify reporting and recordkeeping requirements and to “make U.S. business more competitive for taxpayers,” Congress enacted temporary legislation in 2004 that reduced the formerly nine baskets to two. See House Rep. No. 108-548, pt. 1 (known as the Jobs Act of 2004).

[110] SeeIRC §§ 901and 904 forthe credit calculations andlimitations.

[111] See, e.g., Charles Kingson, The Great American Jobs Act Caper, 58 TAX LAW REV. 327 (2005).

[112]Most notably, through the OECD’s harmful tax practices initiative. See discussion in Allison Christians supra note 73.

[113]Such an outward view is not unprecedented. Scrutiny in similar policy areas is the subject of an extensive annual study by the Center for Global Development, which ranks a number of developed countries on how much they help poor countries through direct policies such as foreign aid commitments as well as indirect policy choices including whether countries impose tariffs on imports or subsidize agricultural exports, and whether countries have tax provisions or treaties to prevent double taxation. See Center for Global Development, Commitment to Development Index 2006, FOR. POL’Y (Sept./Oct., 2006).

[114] It is perhaps not a coincidence that both deferral and the foreign tax credit have recently become major targets of proposed tax reform in the United States. See White House Press Release, Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives For Shifting Jobs Overseas, May 4 2009, available at THE-PLAYING-FIELD-CURBING-TAX-HAVENS-AND-REMOVING-TAX- INCENTIVES-FOR-SHIFTING-JOBS-OVERSEAS/ (last visited June 9, 2009).

[115]For example, in its explanation of the subpart F rule change, the United

States Treasury acknowledges its fundamental purpose is to enhance the competitiveness of United States-based multinationals in the global economy. Notice 2007-13. Similarly, most objections to more robust U.S. taxation of international income center on the theme that taxation destroys the competitiveness of U.S. businesses in the world economy. For a few recent examples, see Kevin Hassert, Obama Tells American Businesses to Drop Dead,, June 8, 2009, available at PnU (last visited June 9, 2009); J.D. Foster and Curtis S. Dubay, Obama International Tax Plan Would Weaken Global Competitiveness, (last visited June 9, 2009). The narrative of taxation as antithetical to competitiveness is one that has enjoyed enduring appeal in U.S. tax debate. See, e.g., Avi-Yonah supra note 101 at 5 (the competitiveness argument has been made “since 1961, with no regard to the actual competitive position of U.S.-based [multinationals] (in 1961, they dominated the world) and without any evidence that any of the changes to the U.S. international tax rules in the last 48 years have in fact adversely affected them.”).

[116 ] Allen Buchanan and Robert O. Keohane, The Legitimacy of Global Governance Institutions,20ETHICS&INT’LAFF.405, 434 (2006).

[117] The literature on global governance is vast. For an overview and broad selection of perspectives, see David Held and Anthony McGrew, GOVERNING GLOBALIZATION (Polity Press, 2004).

[118 ] See, e.g., Miranda Stewart, Tax Policy Transfer to Developing Countries: Politics, Institutions and Experts, in GLOBAL DEBATES ABOUT TAXATION182 (F.Schui& H.Nehringeds.,2007).

[119]OECD, THE OECD’S CURRENT TAX AGENDA 74–75 (2008), available at,3343,en_2649


[120 ] The United Nations is a potential rival, but its historical role in developing international tax policy standards has been peripheral. Despite its early role as advocate for developing countries, the UN’s tax policy committees have been criticized for failing to play a significant role. See, e.g., The U.N. is Failing on International Tax—So the OECD Calls the Shots, Tax Justice Network, June 20, 2008 at on-international-tax-so.html (last visited June 9, 2009); Dries Lesage, Taxation and the 2008 UN Follow-Up Conference on Financing for Development: Policy Recommendations, 61 STUDIA DIPLOMATICA (2008), available at df (last visited June 9, 2009) (“The OECD and the UN are the most relevant players. The OECD has the actual lead. The OECD’s tax department has the most resources and is assisted by the ministries of finance of the industrialized countries. It is also important to note that the OECD in general and for tax matters in particular attempts to exert global influence.”).

[121] Although OECD officials take pains to point out that observer status is much more meaningful than the term implies, a two-tiered status for

participation in global debate about tax policy may challenge the OECD’s goal to “aspire to achieve a truly global perspective.”

[122] At most, the OECD has plans to enlarge to a membership of 40 countries. This is still a relatively small number as the world currently consists of some 192 countries. See CIA, World Factbook However, the enlargement would potentially restore the OECD’s representation of global GDP to past levels. Thus, the combined GDP of OECD members currently represents approximately 60% of world GDP, down from an estimated high of 75% in the 1960s. If Enlargement under the current plans would increase this percentage, perhaps restoring it to its 1960 level. Jeffrey Owens, Enlargement of the OECD: Challenges and Opportunities, presentation at The OECD’s Evolving Role in Shaping International Tax Policy, Washington D.C., June 2, 2009 (powerpoint materials on file with the author).

[123], OECD Relations With Non-Members,,3417,en_36335986_36336523_1_1_1_1_1,00.html (last visited June 9, 2009).

[124], supra note 121.

[125]The OECD’s description states that the intention of its relations with “Non-OECD Economies (NOEs)” is to elicit, as well as provide, expert opinion on tax policy. supra note 123 (“The programme is based on direct contact between currently serving tax officials in OECD member countries and NOEs, as well as experts from the OECD Secretariat, enabling them to share practical experience and expertise. Panels consist of experts from member and NOE countries and the events enable all participating countries to contribute their own perspectives into the dialogue and to understand the tax environment faced by others”).

[126] Diane Ring appears to be the first tax scholar to attempt to document the institutions that contribute to global tax policymaking. Diane Ring, The Role Of International Organizations In Shaping Tax Policy, 2009 working paper on file with the author

[127] See, e.g., Ring supra note 126; Insop Pak, International Finance and

State Sovereignty: Global Governance in the International Tax Regime, 10 ANN. SURV. INT’L & COMP. L. 165 (2004); Stewart supra note 5; Stewart supra note 118l; Miranda Stewart and Lisa Phillipps, Defining Fiscal Transparency: Transnational Norms, Domestic Laws and the Politics of Budget Accountability, CLPE Research Paper No. 38/2008; U of Melbourne Legal Studies Research Paper No. 368, at

[128] Buchanan and Keohane supra note 116 at 432 (discussing the role of “external epistemic actors” in contributing to the transparency, accountability, and ultimately legitimacy, of international institutions).

[129 ] See, e.g., Nancy Kaufman,Fairness inInternational Taxation.


[131] A few scholars have focused on how constraining tax norms are exported to developing countries through institutions such as the IMF and the World Bank. See, e.g., Stewart supra note 5; Stewart & Philipps supra note 127; Stewart supra note 118.

[132] Although the focus here is on some of the ways in which tax policy formulation is impacted by the globalization of policy, the local social, political, and economic context is obviously of primary importance in understanding all of the intricacies that explain the design of a tax system. See Yves Dezalay and Bryant Garth supra note 4; see also Florens Luoga, The Viability of Developing Democratic Legal Frameworks for Taxation in Developing Countries: Some Lessons from Tanzanian Tax Reform Experiences, 2 Law, Soc. Justice & Global Devel. J. 2004, at (“While it is correct that a developing country needs enhanced ability to mobilise resources through taxation … the environment within which this is done, its context and modalities are important considerations”).

[133]See Williamson supra note 17.

Previously published by the University of Wisconsin – Law School

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