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Why Countries Should Tax Global Income

More inclusive global growth in a world with free capital mobility does not require a “global” government that taxes and redistributes, but it does require global taxation and tax cooperation. Countries should be free to set their own taxes, but they should be required to share tax-relevant information.

CAMBRIDGE – If you are a citizen of a country, should you pay taxes on the income you earn only within that country’s geographical limits, or on all the money you earn, independently of where? The United States, Mexico, India, China, and Chile tax global income. Western Europe, Japan, Canada, Peru and Colombia tax territorial income. If the world moved toward global taxation and enhanced some incipient information-sharing mechanisms, the impact on inclusive growth, especially in the developing world, would be very positive.

Who should pay for government and how is an issue at the heart of any political system. The answer combines both social preferences and efficiency considerations, although the former often masquerade as the latter.

In most polities, people prefer to tax the rich more heavily than the poor, UK Prime Minister Margaret Thatcher’s poll tax of the late 1980s being the exception that proves the rule. Thatcher was ousted by her own Conservative Party in November 1990, after she tried to tax everybody the same.

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