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Video: Globalisation in the absence of appropriate tax frameworks can lead to distortions in global efficiency

16 June, 2015

Joseph E Stiglitz at the ICRICT panel in Trento, Italy

Joseph E. Stiglitz, American economist and a professor at Columbia University, talks at the ICRICT panel "Expanding the debate on taxing global corporate profits" that took place in Trento, Italy on 2 June 2015.

He explains that in the context of globalisation, we have moved towards a world where goods and services move freely across borders. In such an environment, the international tax system cannot work. It would be absurd to try to use the transfer price system for corporate taxation in the USA. In the same way, the transfer price system cannot deal with this world of globalisation. This has been evident for a quarter of a century. As Stiglitz explains, it is difficult making a judgement on the value of the goods, especially when you talk about intellectual property. The only solution would be the apportionment system.

Stiglitz explains that the share of corporate tax revenue has gone down dramatically and global tax avoidance has played a big role in this. The result is that corporations are not paying their fair share in taxes. There is a moral issue here. Even if corporations are operating within the law, they are avoiding their responsibilities.

The Apple, Google and Starbucks stories have led the population to greater awareness. Citizens and governments realize that they are being robbed.

This transfer price system is very distortionary; production occurs not necessarily where it is efficient but where taxes are the lowest. The result is that we have lost global efficiency. The irony is people have been arguing for globalisation on the basis of global efficiency, but if you have globalisation and a distorted global tax system you don’t get efficiency.

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