RETHINKING GLOBALISATION, CAPITAL FLOWS, SOVEREIGNTY AND TAXES
RETHINKING GLOBALISATION, CAPITAL FLOWS, SOVEREIGNTY AND TAXES

Summary/Abstract: Whilst neo-liberal globalisation contributed to development and improved living standards in the poorer and less developed countries (Milanovic) it has as well enriched those already more than just well-off individual or group capital investors in those more developed ones who invested globally. However, it has also left-out a large numbers of unemployed and under employed in those same more developed countries. Those are the ones who lost their old jobs, many of which that have been outsourced abroad to lower-wage countries and who could not find alternative full time jobs while GDP growth in those countries slowed down. While academic literature analyses how the profits of FDI are taxed at regular rates, or how they should be taxed on their return to the FDI source countries, they are often left untaxed as they are seldom returned but often reinvested or spent abroad so to avoid paying domestic income taxes. In addition to the rising under and unemployment through job losses, the sovereign tax revenues have been deprived of income and diminishing and so have been the sources of social and other forms of securities expected from the states. The capital flows then often end up attracted to the major sovereign bonds often more than balancing off their outflows upsetting the capital imbalances in the recent years have so that the Federal Reserve has been asked to start targeting the current account balance and impose flexible tax charges on capital inflows so to reduce their inflows and to maintain current account in balance when the inflows exceed the outflows (US Congress bill S.2375, 2019). Capital outflows are, however, not considered. On the other hand, COVID19 supply shocks have shown that just-in time import delivery cannot be guaranteed and relied upon and so many developed importer countries have started rethinking the globalisation aiming to reduce their dependency on distant-path foreign imports of, at least, the key goods. They are considering options such as re-localisation of the production, either within their own or within those other less developed but geographically (and geopolitically) closer countries. In Perendia and Tsoukis (2012/2020) we introduced a Taylor-like fiscal rule for government spending proportional to the expected unemployment levels. We so endogenised the government spending instead being driven only by external shocks as is case in the mainstream economics. This paper therefore: a) presents economic benefits of commerce re-localisation within the country or its region and, b) Extends the above unemployment spending fiscal rule with a new type of fiscal rule and additional tax measures for states to discourage capital outflows and encourage local investment and employment and so, both, reduce local unemployment and state social aid outflows whilst improving GDP.

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