In recent decades, the increasing mobility of companies and capital has led to fierce inter-national tax competition and brought down corporate taxes. Median statutory corporate tax rates in high-income countries have plummeted from about 50% in the 1980s to less than 30% in the 2010s.
This decline in tax rates is putting an increasing strain on public budgets, and fiercer tax competition has the potential to undermine spending on infrastructure, education, healthcare, and other vital areas. It impedes the fight against inequality and fuels the discontent with globalisation.
Brexit could accelerate the tax rate even further. Eroding tax revenues are a likely collateral damage of Brexit on both sides of the Channel. So why could Brexit intensify tax competition?
One reason is that exporters will be hit if trade barriers are erected between the UK and the European Union. New trade barriers will also reduce the attractiveness of the UK as a destination for foreign direct investments (FDIs), particularly since many of the foreign investors have specifically chosen the UK as a port of entry to the European single market.