The Mirage of Mobile Capital

Capital mobility has preoccupied scholars of international taxation for more than 30 years. According to prevailing narratives, when capital is highly mobile, countries compete to attract investment, creating a race to the bottom; capital mobility also enables multinational enterprises (MNEs) to shift profits. The appeal of these narratives has culminated in the OECD’s proposed Global Minimum Tax, which declares the aim of substantially curtailing tax competition. This paper suggests, however, that the significance of mobile capital for international taxation may be largely an illusion. Four deflationary arguments are advanced. First, the rising importance of intangibles for MNEs makes capital less, not more, mobile. Intangibles may seem mobile only because the rights to tax returns to them are arbitrarily assigned, but that is a fact about tax law itself, not an independent fact that tax policy responds to. Second, modelling profit shifting as capital mobility generates conceptual confusion and is often factually inaccurate. Third, empirical evidence for tax competition is very weak, and there are good explanations as to why. Fourth, the international provisions of the CIT generate externalities that likely dominate those from the setting of rates and domestic tax base. The lens of capital mobility sheds little light on such provisions, leaving the nature of their externalities and the scope of any cooperative surplus poorly understood