Tax Policy Challenges in the 21st Century

S. 2I. Introduction

Taxes are the core source of state financing. They are an inevitable means to enable governments to meet the commitments for which they were elected. At least to some extent, the tax burden must reflect the scope and quality of functions the given state performs, although this is not a rule in practice.

There is no doubt that the right to decide on the tax legislation is an essential feature of a state’s sovereignty. The globalization and boom in international trade, however, have meant a turnabout in the tax policy of the majority of economies worldwide. Their tax systems step by step have become exposed to events happening across the border and consequently, their tax sovereignty has become constrained. The spread of information technologies and unprecedented dynamics in information flows have made the national tax systems subject to international comparison. Since taxation is one of the determinative factors for the attraction of Foreign Direct Investment (FDI) it became a popular competition tool for the national economy. At the same time, national tax systems have become more vulnerable to changes in tax legislations abroad and national policymakers were forced t...