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What’s the issue?

Globalization and liberalized international trade have had well-documented negative effects on developing countries, including greater inequality, worker and resource exploitation, and environmental degradation. But can globalization also generate more tax revenues, allowing governments in those countries to provide vital services and make public investments? 

What does the research say?

Utilizing a new global database of effective tax rates on capital and labor, researchers including Harvard Kennedy School Associate Professor of Public Policy Anders Jensen found that, in at least one area, conventional wisdom about globalization's effects has been turned on its head. “By expanding economic activity in larger, formal corporate structures relative to smaller informal businesses, trade liberalization improves the effective collection of taxes,” they write. The effect was sizable; they found trade liberalization can explain 17%-37% of the rise in effective capital tax rates in developing countries. This is despite the so-called “race-to-the-bottom” phenomenon, where countries compete for international business by lowering taxes. The researchers found that effective capital tax rates declined in developed countries, from 36%-38% in the post-World War II decades to about 30% in 2018.