The contemporary business environment and level of technology have changed the global trading behavior beyond the limitations of distance, communication, and the level of development of many of the nations throughout the world. The changing business environments have had a drastic effect on the way the world interacts, and thus how the world trades with each other. Developed nations across the world have been steadily increasing government tariffs in an attempt to defend their labor force from foreign competition. This action eventually suppresses free trade which raises the price of products domestically and decreases the value of the product globally. This tariff barrier keeps foreign competition at bay, especially developing nations, which in turn makes the respective government of less developed nations to raise their tariff on imports drastically. This is a futile attempt to generate government revenue from international trade because many of the domestic taxation sys tems in less developed nations generate minimal government revenue. Eventually all skilled and technologically advanced products that need to be made in developed nations such as cars, telecommunication equipment, and computers will have a heavy tariff in less developed nations and will become unaffordable for much of the foreign population.
Adam Smith could not have predicted the entanglement that free trade would generate between nations and governments. Angus Cameron's essay, Turning Point? The Volatile
Geographies of Taxation, discusses how the trade union between the European States are increasing tax incentives globally. "The growth of the double taxation treaties can be read, therefore, as an attempt by a minority of wealthy ��sovereign'' states to protect their economic and legal boundaries in the context of first, a postimperial world and, second, rapidly globalising economic praxis" (Cameron 242). This double taxation is the act of placing two barriers to trade, one by the respective country, and an additional tax assigned by the European Union. This practice is becoming common between many trade unions throughout the developed and undeveloped world, which is restricting free international trade and increase taxation policies globally.
To get around this double rate of taxation, many businesses will outsource their work to relatively developed countries with a large and inexpensive labor force, such as China or India. By doing this the business is taking jobs away from the domestic country, and reduces the amount the domestic government generates from imports. Phillip Genschel discussed this moving of business assets in his paper, Globalization and the welfare state: a retrospective, "The integration of markets makes it easier to move human, real, and financial capital across national borders and, consequently, more difficult to subject them to national taxation. Capital owners can avoid high taxes by shifting their assets to low-tax countries: exit becomes a viable option and a credible implicit threat" (Genschel 623).
Another way globalization has affect taxes is corporate taxes. Ronald D. Gelleny and Matthew Mccoy essay, Globalization and Government Policy Independence: The Issue of Taxation, explores the international effects that globalization has had on corporate tax rates, which is mostly due to sharp increase in outsourcing by developed countries, specifically OECD countries. OECD governments have been adjusting tax rates to give businesses more incentive to produce domestically, rather than outsource their labor to cheaper foreign labor markets. "Through the use an interaction variable between a nation's education level and legal barriers to capital and financial mobility, we reveal that education mitigates the need for national governments to lower corporate taxes. We also find evidence of an additive association between education levels and higher corporate taxes" (Gelleny 510). This adjusted tax rate is the main tool that many governments's use to provide financial in centive for businesses to ignore the potential cut in production cost offered by foreign labor.
Globalization has affected many different aspects of taxation in both the developed world and the developing world. Globalization has caused countries to entangle themselves with high tariffs, complicated union taxations systems (European Union, NAFTA, African Union, etc.), and governments submitting to the will of corporations by providing them incentive to not outsource their production. The globalization of the business environment has tested the assumptions of free trade and generally accepted economic theories that indicate a better global standard of living if free trade was the international standard of trading. This entanglement of taxation proposes a unique problem that is only going to became more in-depth and complicated as technology improves and the standard of living improves throughout the world. Are the current global taxation trends going to strangle the hope for free trade for future generations?
Cameron, Angus. "Turning Point? The Volatile Geographies of Taxation." Editorial Board of Antipode (2006): 236-58. EBSCOHost. Web. 13 Apr. 2011. .
Gelleny, Ronald D., and Matthew Mccoy. "Globalization and Government Policy Independence: The Issue of Taxation." Political Research Quarterly (2001). EBSCOHost. Web. 13 Apr. 2011. .
Genschel, Philipp. "Globalization and the Welfare State: a Retrospective." Journal of European Public Policy 11.4 (2004): 613-36. EBSCOHost. Web. 13 Apr. 2011. .