Redistribution, Development, and the Contribution of International Tax Governance

By Laurens van Apeldoorn

In her paper ‘Redistribution between rich and poor countries’, Miranda Stewart discusses the interface between international taxation and the Sustainable Development Goals (SDGs) against the backdrop of philosophical theories of international distributive justice. The paper shows the benefits of interdisciplinary dialogue about international tax reform. If we are to develop a coherent picture of the future of international taxation the perspectives of different academic disciplines—including law, political science, and philosophy—should be included. In this post I wish to contribute to this dialogue by presenting some potentially clarifying thoughts from a philosophical standpoint.

The first observation has to do with the relation between the SDGs and justice. Stewart briefly touches on the difference between cosmopolitan and statist conceptions of international distributive justice, before noting the practical obstacles faced by cosmopolitans who wish to create supranational institutions capable of achieving the kind of redistribution that appears to be required to attain the SDGs. Here it may be helpful to point out that both statist and cosmopolitan theorists can agree that the attainment of the SDGs is required by justice.

The SDGs, laid down in the UN 2030 Agenda for Sustainable Development, contain an ambitious global development programme; they call for an end to poverty and hunger (SDG 1 and 2), providing universal access to healthcare and education (SDG 3 and 4), securing full employment (SDG 8) and reducing inequality both within and between countries (SDG 10).

Cosmopolitans are generally committed to global principles of justice that concern individuals. They can quite straightforwardly present the SDGs as required by their preferred principle of justice, for instance a principle of global individual equality of opportunity. To give every child a fair chance in life certainly requires that they have access to such things as healthcare, education, and a well-functioning labour market.

Statist theorists generally identify global principles of justice that concern states, not individuals. They envision a world that is just if states are effectively able to exercise their government functions, have their sovereignty and territorial integrity respected, and above all are capable of ensuring that domestic institutions are just. If states are unable to secure distributive justice for their own people, then it falls on other states to assist them. On the basis of this duty of assistance, together with the claim that domestic distributive justice requires at least the attainment of the SDGs, statists can defend the existence of an obligation for affluent societies to assist low-income countries with the attainment of the SDGs.

Certainly, there are important differences between the cosmopolitan and statist positions, but it is worth emphasizing the common ground between them, especially when considering political objectives that are as important as they are difficult to achieve.

A second set of observations relates to the way in which international tax governance may, or may not, contribute to the attainment of the SDGs. Stewart appears somewhat skeptical for at least two reasons.

First, she distinguishes between two ways of conceiving of cross-border redistribution—between rich and poor countries, and between rich and poor individuals globally—and argues that international tax governance as it stands can only hope to achieve the former, while attaining the SDGs requires the latter. The SDGs are about ‘people not countries’, while international tax governance concerns in large measure the distribution of the right to tax internationally sourced income between countries. Even if one achieves a cross-country wealth transfer, nothing guarantees that this will benefit the poor in the recipient country.

One must agree that poor individuals in a low-income country only benefit from cross-country transfers of wealth if the national government puts these additional resources to appropriate use; countries remain essential actors in the attainment of the SDGs.

I note, however, that such a division of labour precisely fits the statist framework if one conceives of these cross-country transfers as an exercise of the duty of assistance by high-income countries. The problem, on such an analysis, is that low-income countries lack the capital to secure domestic distributive justice; they are unable to spend sufficiently on the (semi-)public goods that are directly or indirectly (via sustainable economic growth) necessary for the attainment of the SDGs.

The cosmopolitan can accept this means of contributing to the attainment of the SDGs as a second-best option that is required insofar as there are no feasible alternatives.

The second reason why Stewart is skeptical of the potential contribution of international tax governance to the attainment of the SDGs, is that it mostly concerns the allocation of the tax base. A tax base does not equal tax revenue. Because states compete for foreign investments they may be willing to forego imposing taxes on the base allocated to them if this leads to additional capital inflows.

This is an important objection, that goes to the heart of the OECDs BEPS initiative. The BEPS initiative is aimed at preventing what the OECD calls ‘harmful’ tax competition, competition that facilitates the artificial separation from the taxable profits from the economic activities that generated those profits. It is not aimed at the elimination of tax competition that is associated with attracting economic activity. However, Stewart’s worry points to the possibility that such tax competition too, can form a cause of international distributive injustice as it may prevent the kind of redistribution that can contribute to the attainment of the SDGs.

Her calls to investigate new transnational forms of tax governance are therefore well-taken. In the absence of such alternatives, however, I would be less dismissive of the possibility of increasing the tax revenue of low-income countries by allocating to them a larger share of the tax base: if, given tax competition, being allocated the right to tax was really to no effect, high-income countries should gladly give up the rights currently allocated to them.