Globalization and Taxation

TLDR

Globalization of capital and labor is argued to pressure advanced capitalist democracies to cut taxes and shrink welfare states. The study tests this hypothesis by examining recent tax and welfare policy developments in Sweden, the world’s heaviest‑taxed country. The authors analyze the history and structure of Sweden’s taxation policy, the arena most likely to be affected by globalization. Sweden has made some changes, but tax and spending reforms have been smaller than predicted, offering little support for the claim that high‑tax, generous welfare states must be abandoned.

Abstract

Many have argued that the increased international mobility of both capital and labor witnessed in recent years will force advanced capitalist democracies to cut taxes and, thus, ultimately roll back their welfare states. This analysis tests this hypothesis through an examination of policy developments in Sweden, the country with the world's heaviest tax burden and largest social welfare state. The analysis focuses on the history and structure of taxation policy (the policy arena predicted to be most directly affected by globalization). The findings reveal that there have been very important changes in the Swedish welfare state: The tax and spending regimes have been changed less than the globalization thesis predicts. This analysis argues that Sweden has indeed adapted and changed in recent years but finds little support for the more dire thesis that countries like Sweden must abandon their high-tax regimes and/or their generous social welfare systems.