Tax competition: lower taxes means less poverty

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Tax competitionlower taxes means less poverty

• Richard Teather
• Bournemouth University

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Tax competition

• Tax competition brings great benefits, to all
  society and not just to those who directly take
  advantage of it
• The Benefits of Tax Competition

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Tax competition

• the use by governments
• of low effective tax rates
• to attract
• capital or business activity

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Benefits of tax competition

• ? taxes ? wealth

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Benefits of tax competition

• ? taxes ? wealth
• encourages entrepreneurship
• encourages savings investment
• encourages work

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Benefits of tax competition

• ? taxes ? wealth
• Growth in government stunts general economic
  growth. (Federal Reserve)
• Tax increases result in a net efficiency loss to
  the whole economy (IMF)

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Benefits of tax competition

20
75
Tax 13 NI 4 VAT 7 44
VAT (12) Tax (25) 38.
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Benefits of tax competition

• ? taxes ? wealth
• efficient global capital markets

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Efficient global capital markets

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Benefits of tax competition

• ? taxes ? wealth
• encourages entrepreneurship
• encourages savings investment
• encourages work
• efficient global capital markets

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Benefits of tax competition
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Who benefits?

• the rich get richer ?
• multinationals avoid tax ?

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Who benefits?
100 tax
75
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Who benefits?

• Cayman finance industry generates
• 55 of Caymans GDP
• 40 of all government revenues
• 30,000 business visitors
• 36 of employment - 12,500 jobs

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Who benefits?
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Low tax characteristics

• Offshore finance centres vary
• No taxes on income
• Low taxes on income
• High taxes but exemptions
• High taxes but specific treatments

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Alternative taxes

• Different sectors
• Vanilla banking
• Private wealth management
• Fund management
• Insurance
• Hedge funds

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Alternative taxes

• Income taxes
• Prevent most offshore finance
• Highly competitive world
• Mobile customer base
• Exemptions difficult to justify
• Reduces confidence

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Alternative taxes

• Payroll taxes
• Reduces employment
• Directly harms workers
• Discourages high-value operations
• Reduced to back-office function
• Increased brass plate operations

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Alternative taxes

• VAT
• Highly complex
• Cant deal with financial services
• Still harms finance industry
• Discourages flexibility
• Unnecessary in small economy

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VAT
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VAT
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VAT
Cayman GDP
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VAT
Cayman GDP
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Alternative taxes

• Different sectors
• Vanilla banking
• Private wealth management
• Fund management
• Insurance
• Hedge funds

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The future

• Tax competition is mutually beneficial
• embrace it
• Lower taxes
• increase domestic economy
• attract international capital
• main benefit goes to workers

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Tax competitionlower taxes and more growth

• Richard Teather
• Bournemouth University