Why Do Countries Have Different Tax Rates?

Taxes are an integral part of human civilization, with evidence of taxation dating back to ancient Egypt and the Roman Empire. Today, countries around the world use a combination of state and local taxes to fund subnational government, while Ireland and the United Kingdom rely solely on local property taxes. In most cases, those who earn more money pay a higher percentage in taxes compared to lower income groups. The average corporate income tax rate in Europe is 18.7%, lower than the global average of 22.8%.

This is because, over the past 30 years, corporate income tax rates have steadily declined in all countries, going from around 40% to less than 25% on average. This is due to multinational companies and their profit transfer activity around the world, as governments had to lower corporate income tax rates in order to collect some tax revenues from corporate profits. Taxes do have an effect on the behavior of economic agents and reduce the well-being of those who bear the greatest tax burden. Some economists argue that lower corporate tax rates encourage investment and business growth; however, others claim that they contribute to economic inequality by reducing public spending on education and health care.

In addition to corporate taxes, countries also levy taxes on goods and services at their final destination. This means that countries that rely on imported goods may collect more consumption taxes than countries that are largely export-oriented. Companies, many of them small, are known as transfer entities and pay taxes differently than large corporations, which make up most of the United States. The principles of taxation call for the imposition of low tax rates on a broad tax base with a limited list of exemptions.

However, some experts warn that the proposed minimum tax is too low to discourage the transfer of benefits from developing countries, which tend to have higher tax rates. In many cases, governments grant fixed taxes to businesses as an incentive to attract corporations and other employers. For example, the United States recently proposed a corporate tax rate of 21% to 28% to finance trillions of dollars in infrastructure spending and other major public investments.