Capital is now extremely mobile and the international community, through the IMF and the World Bank and the OECD, has moved to make it more mobile over time by pressing countries to eliminate their remaining restrictions on capital flows. As this capital is both mobile and very scarce countries, desperate for investment which will create jobs, will often compete with each other by lowering taxes in special incentive schemes that make countries that are otherwise unattractive look fairly good. For the Europeans and the Americans this has been a real issue that is undermining their revenues and social model. In 1983, the average statutory corporate tax rate of 13 Western European countries accounted to 49.2%. As of 2008, the average tax rate of these countries had eroded to 27.2%.
But the lowering of the statutory tax rates are just the tip of the tax-free iceberg as many of the large European countries, like the UK have also provided all sorts of other legal tax incentives and provisions that have permitted companies to avoid paying local taxes. Corporate tax revenues on both sides of the North Atlantic have not been expanding in proportion of corporate profits as governments began competing with each other for scarce investments by competitively lowering effective tax rates.
