18
as simple. Since the early 1970s, Left governments in the OECD face an important
challenge: an increase in the internationalization of the economy. As it is conventionally
argued, in a world characterized by globalization, owners of mobile assets have the ability to
move to markets that provide the highest returns. High levels of mobility therefore lead to
lower taxes on mobile assets (mostly capital) and (to compensate for lost revenues) with
higher taxes on less mobile assets (mostly labor).
40
Ganghof shows that this is in fact the
tax rates.
41
Given the limitations faced by Left government in open economies, this paper’s
expectations about the influence of government partisanship on taxes on corporations need to
be transformed. It is still possible for taxes on corporations to affect inequality (higher taxes
would be correlated with lower inequality) but it seems unrealistic, given capital exit threats,
to expect that Left governments would increase corporate taxation (regardless of institutional
configurations).
Summary of Hypotheses
Figures 1 and 2 summarize the theoretical claims outlined in the previous sections.
The interactions with corporatism are summarized in Figure 1. When corporatism is low, the
relationship between government partisanship and policy is characterized by a plus sign.
This means that Left governments are expected to raise minimum wages, government
40
See Assaf Razin, and Efriam Sadka, “International Tax Competition and Gains from
Tax Harmonization,” Economic Letters 37 (1991): 67-76; and Roger Gordon and Jeffrey
Mackie-Mason, “Why Is There Corporate Taxation in a Small Open Economy?” in
Martin Feldstein et al (eds.), The Effects of Taxation on Multinational Corporations
(Chicago: University of Chicago Press, 1995).
41
See Stephen Ganghof, Global Markets, National Tax Systems, and Domestic Politics,
MPIfG Discussion Paper 01/9, 2001. There is, however, also evidence contradicting this
framework. See Duane Swank and Sven Steinmo, “The New Political Economy of
Taxation in Advanced Capitalist Democracies,” American Journal of Political Science 46
(2002): 642-55; Geoffrey Garrett and Deborah Mitchell, “Globalization, Government
Spending, and Taxation in the OEDCD,” European Journal of Political Research 39
(2001): 145-177; Geoffrey Garrett (fn. 38), and Duane Swank, “Funding the Welfare
State: Globalization and the Taxation of Business in Advanced Market Economies,”
Political Studies 46 (1998): 671-92.
Convention