Abstract
Half a century after the end of most formal colonial oppression, the global financial and tax systems remain deeply biased against the interests of majority world (‘developing’) countries. This bias is salient in the worldwide impact of policies shaped by the key organization in global tax governance, the Organization for Economic Co-operation and Development (OECD), as well as data gaps around tax and financial matters the OECD presides over.
This club of minority world (‘developed’) countries designs policies that cover most of global economic activity and thus heavily impact the distribution of tax revenues and the shape and magnitude of tax avoidance. One result of this biased and largely dysfunctional global financial and tax architecture are large volumes of illicit financial flows and associated tax revenue losses disproportionately affecting majority world country economies and public coffers.
Another result is the undermining of the state building function of taxation, which is one of the 4 ‘Rs’ functions of taxation: revenue, redistribution, repricing and representation. Representation is vital for sound and accountable institutions and good governance, as citizens hold governments to account over spending of tax money as one dimension of the social contract.
Under the current global system, majority world country elites can too easily escape paying taxes, allowing their governments to shift their allegiance away from their citizens to foreign donors and aid agencies or to the natural resource sector. The challenge is how to reconfigure this global system to make it more inclusive for greater social and economic equity.
This chapter reviews the politics behind the current global setup for regulating tax and illicit financial flows, discusses policy solutions and how progressive transformation could be supported.