Another Victory for Tax Competition

January 8, 2023 by Dan Mitchell @ International Liberty

I’m a big fan of tax competition.

Why? Because politicians are far more likely to keep tax rates low when they are afraid that jobs and investment can move to countries (or states) with better tax system.

It also explains why tax rates fell dramatically around the world after Ronald Reagan and Margaret Thatcher triggered a virtuous cycle of jurisdictional competition.

And it explains why politicians are fighting to curtail tax competition. They want taxpayers to be akin to captive customers. When that happens, they can push tax rates back up.

Given my cheerleading for tax competition, you won’t be surprised to learn that I get a jolt of pleasure anytime I read about a government being pressured to lower tax rates.

Which is why I’m going to share some excerpts from a story in the New York Times.

Dubai started the new year by suspending its 30 percent tax on alcohol, a move that could help the Gulf emirate attract more tourists and businesses amid growing regional competition. Dubai removed the tax on Sunday, along with the fee for a license that individuals need to buy alcohol, local beverage distributors said. …Offering significantly cheaper liquor is likely to bolster Dubai’s position as the Middle East’s center for tourism and business at a time when economists are warning of a global economic slowdown that could dent spending on travel and leisure. …The changes are likely to give a boost to the local hospitality industry… The decision was the latest in a series of measures that appear to be designed to cement Dubai’s position as the dominant hub for tourism and investment in the Middle East. …Dubai is facing increasing competition from Qatar and Saudi Arabia.

I’ve been to Dubai a few times, but never Qatar or Saudi Arabia, so I can’t personally comment on the relative attractiveness of the three jurisdictions.

But I’m glad that they feel pressure to compete with each other. The net result is more liberty.

P.S. I can’t resist pointing out that our leftist friends should not be overly upset about tax competition. After all, even data from the OECD shows that governments are collecting more money now that tax rates have significantly dropped. Though that data may not be very convincing if folks on the left are motivated by something other than greed for more tax revenue.