Tax competition

The phenomenon in which two or more jurisdictions attempt to attract businesses and individuals by reducing their tax rates. While this can prevent governments from imposing excessive tax burdens on their populations, the extent to which it succeeds depends on the mobility of taxpayers. Capital controls under the Bretton Woods system made it difficult to move money between countries, and as a result, tax rates on companies and wealthy individuals were generally higher. Today, some argue that the combination of free capital movement and tax havens means that the corporate sector and the wealthy do not pay enough tax.