After the Financial Crisis

Richard Eccleston, The Dynamics of Global Economic Governance:  The Financial Crisis, the OECD and the Politics of International Tax Cooperation (Edward Elgar, Cheltenham, 2012).

The breadth of global tax evasion has made public headlines and brought attention to the initiatives of the Organisation for Economic Co-operation and Development (OECD), alongside the G20 and other international bodies.  As Richard Eccleston reports, “the sheer magnitude of the threat that international tax evasion poses, denying governments approximately $250 billion per year – more than 15 times the sum spent on humanitarian aid globally in 2011 – ensures that the issue is gaining prominence on the international political agenda.” (P. 33) When taxpayers evade their obligations, the world suffers.  How could anyone not be gripped?

The Dynamics of Global Economic Governance:  The Financial Crisis, the OECD and the Politics of International Tax Cooperation is a welcome addition to the literature on the regulatory responses to international tax evasion, authored in the light of the global financial crisis.  Richard Eccleston, a political scientist in Tasmania, shifts the typical legal scholar’s lens from the legal frameworks that facilitate tax evasion to a careful and insightful exploration or the role of political actors in facilitating tax cooperation in response to that evasion.  The work is supported by interviews with more than 40 national tax officials, business and NGO representatives, OECD and UN staff.

From a political science perspective, I understand that the work distinguishes itself from prior contributions because Eccleston argues that the financial crisis created the bench from which the OECD was able to successfully agenda-set and promote international tax cooperation among the G20 leaders.  This discovery runs counter to at least some of the previous political science and international relations work in the area, which has found only limited evidence that international organisations, like the OECD, shape national policy.

Global Economic Governance is written for tax junkies.  It is shot through with detail, carefully crafted, and densely written.  For those with a mild interest in the area, the chapter to spend time on is the first one, and most specifically the section that details the strategies used in international tax evasion: private banking, mass-marketed tax schemes, opaque corporate structures, shell entities, trusts, rules that obscure real ownership, methods of disguising real corporate ownership, and exempt entities.  This reads like the stuff of a good (or perhaps average) Tom Cruise movie: nevertheless, it is daily fare for those who seek to avoid tax liability around the world.

Chapter 2 provides a sophisticated account of the different methodological approaches and theories that could inform this kind of political science work and ultimately details the theoretically-informed narrative method Eccleston has embraced, which uses a combination of deductive and inductive strategies to assess theories of international regime change.

For those who like tax policy, dig in from Chapters 3 to 6.  Those chapters start with a review of the OECD’s Harmful Tax Competition initiative.  In its early instantiation, that initiative sought to alter the practices of countries with no or only nominal taxes, no effective exchange of information, no transparency, and where no substantial economic activity was required for an economic actor to be associated with the jurisdiction.  Those early objectives were altered and eroded as the project evolved.

As someone who loves tax, I’ve spent many a dinner debating the Harmful Tax Competition initiative: Was that project effective?  Could it have been?  What role did the different OECD country-actors (especially Switzerland and the United States) play in the adjustment of the aims of the initiative over time?  What role did that initiative play in the push to information exchange and transparency that followed the financial crisis in a new wave of proposals (tax transparency) from the OECD?

Chapters 3 through 6 weigh in on those questions, and others.  Eccleston concludes that despite what he considers the failure of the OECD’s early efforts, its work following the financial crisis was instrumental in shaping national policy responses.  The OECD served as an advocate for the G20 to endorse tax transparency measures.  More fodder for those of us who like to debate these matters that are so essential to global tax governance.

In Chapter 6, the last substantive chapter, Eccleston focuses on the potential of tax transparency initiatives, the OECD’s post-financial-crisis focus. The objective of promoting tax transparency, at least in terms of the OECD work, has found its chief realization in the proliferation of bilateral tax information exchange agreements.  I agree entirely with Eccleston’s less optimistic assessment of the potential effectiveness of those agreements.  Without automatic information exchange, it’s hard to imagine that the scope of international tax evasion will be reduced.  That said, the OECD’s most recent move (on February 13, 2014) to release a model Competent Authority Agreement and Common Reporting Standard for automatic exchange of financial account information might provide some very modest grounds for cautious optimism.  Eccleston’s work suggests that it may get some traction.

If you love tax law and policy, Global Economic Governance should be on your reading list.  Don’t expect light reading, but do expect to come away with a richer sense of the contributions political scientists can make to our understanding of the tax evasion challenges ahead and the potential role of institutional actors, for better or worse.