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lt of high marginal income tax rates. These losses are more than directly proportional to increase in tax rates, therefore, even a small decrease in tax rates lead to huge economic benefits. Capital taxes which are inefficient are curbed away by tax competition thus paving way for increased investment and global economic growth.

 

Drawbacks

 

The presence of so many advantages does not necessitate that international tax competition is free from side effects. Firstly, it destroys the tax neutrality and disrupts the movement of global resources. In case of world being considered as a global unit, tax competition reduces the harmful effects of taxes on global economic action. But from the point of view of an individual country, tax preferential areas are benefited by tax competition by flow of capital to lower tax burden nations thereby negatively affecting the geographically-mobile activities of global resources. Secondly, it affects the tax structure of other nations. The basic aim of tax competition is to benefit the industry of its own country whereby the investors’ decision of location for investment is affected by the preferential tax regimes. Thus, various industries and capital will switch from high tax burden country to a lower tax burden country. In this race of lowering tax burdens amongst countries, the global tax base will be hampered, thus weakening the global financial function, and will lead to production of less public goods causing non-satisfaction of public needs. In the end, it will lead to weakening of tax sovereign of all countries. Every state need funds to function and taxes are the primary source of such funding. Moreover the developing countries are in a greater need of such income generated by tax. In fact, the increase in dependency ratios [6] will be seen in all countries of the world, as there is decline in fertility rates and improvement in health care. This further strengthens the need to an efficient direct income taxation system to generate the desired revenue to meet the needs of this growing population. Therefore lesser public benefits are availed due to reduced tax revenue and it becomes difficult to reallocate goods and services and redistribute wealth. Third disadvantage is the increase in the cost of tax. In order to protect its tax system from poaching, every country will take actions. In addition, an international information network is required to be set up to ensure appropriate taxation and avoidance of duplicacy of taxation. But it will result in complicated tax system which will increase the cost of tax.

 

This tax competition resembles a race toward the bottom in which one country provides preferential tax terms in order to attract foreign investment and is ousted by some other country which provides better tax terms for the same investment. In order to compete, the first country offers a even more generous tax treatment and so on. This continues till the incentive to attract the investment becomes nil. There might develop a situation where such country could suffer a loss by permitting the foreign investor to avail benefits without any cost from the country’s infrastructure本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。