The Global Market for Tax and Legal Rules

The canonical literature in law and economics argues that tax laws are more efficient than other areas of law (such as private law) in redistributing income. Focusing on two basic features of globalization—marketization of the state-constituent relationship and the fragmentation of sovereignty—the Article challenges this conventional wisdom. In the globalized economy, (some) people and businesses can pick and choose the laws applicable to their activities: they can reside in one jurisdiction, do business in another, register their IP in a third, invest under the rules of a fourth, and pay taxes, if any, in a fifth. Thus, in determining which rule is a better platform for efficient redistribution, states should look beyond their domestic dynamics and respond to the elasticity of taxpayers’ choices among jurisdictions.

Tax rules, with the many opportunities they offer to (particularly well-off) taxpayers to opt out of the taxing jurisdiction, lose their a priori advantage over nontax rules as a framework of redistribution.