Reconsidering citizenship taxation

Journal article

The pressures of globalization undermine the ability of states to collect taxes and pursue distributive justice. Free movement and other opportunities for people to engage with different jurisdictions on a personal and economic level are essential for liberty. But unrestrained market competition between states to provide the world’s wealthiest and most skilled a fragment of the social contract in exchange for a reduction in their tax obligations imperils the welfare state.

If the duty to pay taxes for redistribution exists within self-defining communities, then our new world of multiple and partial community allegiances raises fundamental questions. People are increasingly mobile, frequently live outside their state of nationality, and interact with multiple jurisdictions in a variety of ways. Although what constitutes membership may be decided by each such community independently, human mobility and interstate competition erode the ability of a single community, acting alone, to enforce its view of membership. As the community loses the ability to define itself and to bind people it considers members to that choice, the community also loses the material support it needs to sustain itself. In such a world, the very definition of community becomes subject to the rules of supply and demand, under which diverging elasticities and the relative attractiveness of both jurisdictions and taxpayers become paramount.

The strongest states may be able to overcome these challenges unilaterally with the aid of citizenship taxation. We emphasize, however, that the United States may remain an outlier in assessing citizenship taxation. US citizenship has proved extremely sticky, and therefore capable of sustaining a lightly administered form of citizenship taxation characterized by toleration for what is presumed to be widespread noncompliance. But weaker and less attractive states may be unable to sustain even a limited form of citizenship taxation, and they may therefore lose their tax base as they lose residents.  

A cooperative accord on the global level could tame some interstate competition over migrants. Such a global accord would, however, face difficulties, including setting the desirable balance between personal liberty and community responsibility; determining the duty of justice between states; and defining the procedures that will determine the arrangements. States would also face accountability, legitimacy, and practical difficulties in implementing any such arrangements. These difficulties should not be underestimated, yet overcoming them is one of the challenges of the next 100 years of taxing people.

Authors: Dagan, T; Mason, R

• Publication status: Published
• Peer review status: Not peer reviewed
• Publisher: Max Planck Institute for Tax Law and Public Finance
• Publication date: 2024-11-22
• DOI: 10.2139/ssrn.5029551
• Paper number: 2024-34
• Language: English