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Rethinking sovereignty in international fiscal policy


The power to raise taxes is a sine qua non for the functioning of the modern state. Governments frequently defend the independence of their fiscal policy as a matter of sovereignty. This article challenges this defence by demonstrating that it relies on an antiquated conception of sovereignty. Instead of the Westphalian sovereignty centred on non-intervention that has long dominated relations between states, today's fiscal interdependence calls for a conception of sovereignty that assigns duties as well as rights to states. While such a circumscribed conception of sovereignty has emerged in other areas of international law in recent years, it has yet to be extended to fiscal questions. Here, these duties arguably include obligations of transparency, of respect for the fiscal choices of other countries, and of distributive justice. The resulting conception of sovereignty is one that emphasises its instrumental as well as its conditional character. Neither state sovereignty nor self-determination is an end in itself, but a means to promoting individual well-being. It is conditional in the sense that if states do not live up to their fiscal obligations towards other states, their claims to autonomy are void.

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1 See BBC, ‘Swiss Bank Refuses US Tax Request’ (1 May 2009), {}, last accessed 13 September 2010.

2 See, for example, Avi-Yonah, Reuven, ‘Globalization, Tax Competition, and the Fiscal Crisis of the Welfare State’, Harvard Law Review, 113:7 (2000), pp. 15731676 ; Rixen, Thomas, ‘Tax Competition and Inequality – The Case for Global Tax Governance’, Global Governance: A Review of Multilateralism and International Organizations, 17 (2011) pp. 447467, in print ; Dietsch, Peter, ‘Tax competition and its effects on domestic and global justice’, in Banai, Ayelet, Ronzoni, Miriam, Schemmel, Christian (eds), Social Justice, Global Dynamics – Theoretical and Empirical Perspectives (London: Routledge, 2011), pp. 95113 .

3 See Thomas Rixen, ‘From double tax avoidance to tax competition: explaining the institutional trajectory of international tax governance’, Review of International Political Economy. First published on: 20 October 2010 (iFirst), p. 10. Rixen credits the term to Vann, Richard J., ‘A Model Tax Treaty for the Asian-Pacific Region? (Part I)’, Bulletin for International Fiscal Documentation, 45:3 (1991), pp. 99111; see p. 102 .

4 This question targets the ‘regulative’ as opposed to the ‘constitutive’ face of sovereignty. See Philpott, Daniel, ‘Sovereignty: An Introduction and Brief History’, Journal of International Affairs, 48:2 (1995), pp. 353368 . Whereas the latter defines the legitimate holders of sovereignty, the former asks ‘what essential prerogatives in making and enforcing decisions’ legitimate polities enjoy (p. 358).

5 See Krasner, Stephen D., ‘Pervasive Not Perverse: Semi-Sovereigns as the Global Norm’, Cornell International Law Journal, 30 (1997), pp. 651680; see pp. 653659 .

6 Krasner, ‘Semi-Sovereigns’, p. 656.

7 See Palan, Ronan, ‘Tax Havens and the Commercialization of State Sovereignty’, International Organization, 56:1 (2002), pp. 151176 .

8 These two policy objectives are widely accepted as serving basic functions of domestic fiscal policy. See, for example, Avi-Yonah, ‘Globalization’, pp. 1576 and 1625.

9 See Avi-Yonah, ‘Globalization’, pp. 1527 and 1621.

10 See Rixen, ‘From double tax avoidance to tax competition’. For the OECD tax convention that serves as foundation to this regime, see Organisation for Economic Cooperation and Development, Model Tax Convention on Income and on Capital: Condensed Version (Paris: OECD, 2005) .

11 Rixen, ‘From double tax avoidance to tax competition’, p. 13.

12 See Krasner, ‘Semi-Sovereigns’, p. 659. See also Buchanan, Allen, Justice, Legitimacy, and Self-Determination (Oxford: Oxford University Press, 2004), pp. 5657 and chap. 6. Authors who do not make the distinction between different aspects of sovereignty that I rely on here, like Endicott, Timothy, ‘The Logic of Freedom and Power’, in Besson, Samantha and Tasioulas, John (eds), The Philosophy of International Law (Oxford: Oxford University Press, 2010) ; or Klabbers, Jan, ‘Clinching the Concept of Sovereignty: Wimbledon Redux’, Austrian Review of International and European Law, 3 (1999), pp. 345367 , capture these tensions as an apparent paradox of sovereignty.

For international lawyers like Klabbers, the apparent paradox of sovereignty primarily refers to the issue whether voluntarily entered to legal agreements can bind sovereign states at later moments in time. By contrast, this article is preoccupied with the question whether interdependent states have moral obligations vis-à-vis each other.

13 Recognising this conflict undermines the position that Buchanan labels legal nihilism. Paraphrasing H. L. A. Hart, Buchanan points out that ‘to say that there is no international law because the sovereignty of states precludes their being bound by law is to fail to understand that the powers, rights, liberties, and immunities that constitute sovereignty are defined by international law. To be sovereign is to be a member of a system of entities defined by and subject to international law.’ See Buchanan, , Justice, Legitimacy, and Self-Determination, p. 50 .

14 I take most of these examples from Krasner, ‘Semi-Sovereigns’, pp. 662–4.

15 Krasner, Stephen D., Sovereignty: Organized Hypocrisy (Princeton: Princeton University Press, 1999) .

16 Rustiala, Kai, ‘Rethinking the Sovereignty Debate in International Economic Law’, Journal of International Economic Law, 6:4 (2003), pp. 841878 .

17 See Brown, Chris, Sovereignty, Rights and Justice (Cambridge: Polity Press, 2002) . He points out that ‘modern thinking on actual sovereign powers stresses the extent to which they have always been limited …’ (pp. 5–6).

18 Brown, , Sovereignty, Rights and Justice, p. 35 .

19 Having said that, I suspect my disagreement with Brown might be merely terminological.

20 Shue, Henry, ‘Limiting Sovereignty’, in Welsh, J. M. (ed.), Humanitarian Intervention and International Relations (Oxford, Oxford University Press, 2004), p. 15 . Shue adds: ‘Without a partially rule-governed society, there are no duties; and with no duties, there are no effective rights. This is nothing specifically to do with sovereignty but is a matter of what a right is. Thus, if sovereignty is a right, sovereignty is limited. Sovereignty is limited because the duties that are constitutive of the right, and without which there can be no right, constrain the activity of every sovereign belonging to international society.’ (p. 15)

21 For a more detailed development of the analogy between individual liberty and state sovereignty, see Endicott, ‘The Logic of Freedom and Power’. Endicott cites Raz, who rightly emphasises that ‘autonomy is possible only within a framework of constraints.’ See Raz, Joseph, The Morality of Freedom (Oxford: Oxford University Press, 1986), p. 155 . The structure of this argument is the same as Shue's point about sovereignty.

22 See Slaughter, Anne-Marie, ‘Security, Solidarity, and Sovereignty: The Grand Themes of UN Reform’, The American Journal of International Law, 99 (2005), pp. 619631 : ‘To exercise … authority and control in a world that has become so interconnected that people, politics, and pathogens are virtually able to disregard borders requires institutionalized cooperation and intervention.’ (p. 629)

23 Chayes, Abram and Chayes, Antonia H., The New Sovereignty (Cambridge, MA: Harvard University Press, 1995) .

24 See Buchanan, who argues ‘for a kind of staged, conditional, and provisional practice of recognition, according to which in some cases an entity claiming statehood status would not be granted all the attributes of sovereignty at once, but would be accorded them in steps, contingent on satisfying certain normative standards …’ See Buchanan, , Justice, Legitimacy, and Self-Determination, p. 56 .

25 See Krasner, ‘Semi-Sovereigns’, pp. 653–54.

26 See Shue, ‘Limiting Sovereignty’.

27 The following information is based on Anne-Marie Slaughter's insightful comments on the UN report ‘A more secure world: our shared responsibility’ (Slaughter, ‘Security’).

28 International Commission on Intervention and State Sovereignty, The Responsibility to Protect: Report of the International Commission on Intervention and State Sovereignty (2001) . Available at, accessed 13 September 2010, p. 13.

29 Slaughter, ‘Security’, p. 620.

30 High-Level Panel on Threats, Challenges and Change, UN, A More Secure World: Our Shared Responsibility, UN Doc. A/59/565 (2004). Available at: {}, accessed 13 September 2010, pp. 21–2.

31 The first two sections of the article contain an inquiry into the most appropriate content of sovereignty as a norm governing interstate relations but took for granted that some form of state sovereignty is justified. The present section questions this assumption.

32 Brown, , Sovereignty, Rights and Justice, p. 80 .

33 For a discussion of a variety of different replies to the two questions, see chap. 5 of Brown, Sovereignty, Rights and Justice.

34 Endicott, ‘The Logic of Freedom and Power’, p. 257.

35 See also Buchanan, , Justice, Legitimacy, and Self-Determination, pp. 5556 .

36 I would like to thank an anonymous referee for forcing me to rethink the normative status of sovereignty under the Westphalian conception.

37 I bracket the issue of sanctions in the present article.

38 The contrast to another economic context, namely trade, is surprising. The rules of the World Trade Organization against protectionist tariffs can be regarded as conform to the idea of sovereignty as responsibility.

39 See the section, ‘The many facets of sovereignty’, third paragraph.

40 See Dietsch, Peter, ‘Show Me the Money: The Case for Income Transparency’, Journal of Social Philosophy, XXXVII/2 (2006), pp. 197213 .

41 This assumes that the policy choices of the government in question are themselves legitimate, that is, geared towards the classic goals of fiscal policy (welfare maximisation through the provision of public goods and equity in particular). See the discussion of the second principle below.

42 Given that individuals are taxed on a residence basis, if a government wanted to keep secrecy laws intact for its own citizens, this would be compatible with the transparency requirement defended here. For a stricter transparency requirement, see fn. 40.

43 See Murphy, Richard et al. , Tax us if you can, Tax Justice Network (2005), p. 56 .

44 That is, a tax regime where the tax base for a certain kind of tax is consolidated across countries before the right to tax a certain share of this tax base is allocated on the basis of a to-be-agreed-upon formula.

45 Harmonisation is undesirable both because it would not respect the diverging preferences of different polities with regard to the size of the state and the level of redistribution, but also – borrowing a point made by John Stuart Mill about the desirability of various experiments of living – because it would reduce the diversity of fiscal arrangements and the insights generated by this diversity.

46 For a more systematic analysis of what it means to respect the fiscal policies of other countries, see Peter Dietsch and Thomas Rixen, ‘Tax Competition and Global Background Justice’, unpublished paper.

47 By contrast, today's international tax regime seems rather inimical to conversion. A report published by Oxfam estimates that developing countries lose approximately $50 billion of government revenues annually due to tax competition (see Oxfam, Tax Havens: Releasing the hidden billions for poverty eradication, 2000). This may not be a consequence of intentional policies pursued by developed countries, but suggests that the latter could and should at least be more proactive in reforming the current regime.

48 Musgrave, Richard A. and Musgrave, Peggy, ‘Inter-nation Equity’, in Bird, Richard M. and Head, John G., Modern fiscal issues: essays in honor of Carl S. Shoup (Toronto, Buffalo: University of Toronto Press, 1972) .

* I would like to thank the organisers, Laura Valentini and Tiziana Torresi, and participants of the workshop International Law and Global Justice held at Oxford in May 2009. Previous versions of the article benefited from comments at the workshop Tax competition: How to Meet the Normative and Political Challenge (Montréal, 2008) and the joint workshop of the Centre for Ethics (Toronto) and the Centre de Recherche en Éthique de l'Université de Montréal (CREUM) in Toronto in February 2009. Moreover, I am grateful to François Claveau, Thomas Rixen, Miriam Ronzoni, an anonymous referee for their comments.

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