Countries compete for residents by offering to do more for less (lower taxes), in the hopes of attracting people and firms, e.g.,
Ireland’s low [12.5% corporate tax] rate has helped attract many of the new breed of footloose digital giants that don’t need to be close to consumers to sell to them, and can register their intellectual property—from which their profits derive—just about anywhere.Like any cartel, the G-7 can make itself better off by fixing prices (corporate tax rates at 15%), thus eliminating competition among its members for residents and firms.
Without competition to motivate them, I predict that:
- these countries will become less responsive to those they are supposed to serve; and/or
- they will "cheat" on the collusive agreement by competing in other dimensions, e.g., reducing property taxes, cutting red tape, giving away land, subsidizing wages.
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