Tax Policy in an Era of Internationalization: Explaining the Spread of Neoliberalism

I offer an explanation for the widespread diffusion of neoliberal tax policies in the developed democracies. After accounting for the policy influences of commonly experienced domestic and international forces, I consider several plausible paths of diffusion of neoliberal tax structure. My central argument is that the highly visible 1980s market-conforming tax reform in the United States should be especially important in shaping subsequent tax policies in other polities. There are substantial reasons to believe, however, that domestic political and institutional forces will shape policy-maker assessment of the benefits and costs of neoliberal reforms: the strength of right parties and the degree to which the median voter has moved right should condition adoption of neoliberal tax policy; the institutions of national and sector-coordinated capitalism should also slow the enactment of neoliberal tax reforms. I assess these arguments with empirical models of 1981-98 tax rates on capital in sixteen nations. I find that changes in U.S. tax policy influence subsequent reforms in other polities; in the long term, all nations move toward the U.S. neoliberal tax structure. Analysis also shows, however, that the short-term responsiveness to U.S. tax reforms is notably greater where uncoordinated market institutions are dominant. Theory and extensive qualitative and quantitative evidence indicate that pressures to compete for mobile assets, as balanced against the economic and political costs of adoption, anchor the process of diffusion of neoliberal tax policy. There is little evidence for the view that systematic policy learning or social emulation drove tax policy diffusion.