Impact of Competitive Tax Policy on the Welfare State: An International Comparison

This paper undertakes an analysis of four nations i.e., South Korea, USA, India and China for the time period 1985-2002, to empirically find out whether the apprehensions of anti-globalisers about the melting away of the welfare state due to globalisation and the resultant tax competition is warranted or not. It also seeks to find out the correlation, if any, between aggregate tax levels and the welfare expenditure. In case the empirical data justify the falling tax revenues, both in absolute inflation-adjusted values and as a percentage of GDP, then it is a matter of real concern alld nation-states would have to take steps to arrest their falling revenues and meet increasing welfare expenditure. Although, even if a fall in tax revenue may not affect welfare expenditure directly due to its being largely pre-committed and of popular nature, still falling tax-revenues in itself may be concern as it hampers the redistribution power of the state.