Political theory has often struggled in trying to determine what justice requires across the borders of nation-states. In her piece Tax and Globalization: Toward a New Social Contract, Tsilly Dagan addresses these thorny issues in the context of taxation. In doing so, she shows that one of the great difficulties that tax, and indeed all areas of law, face under globalization, is to ensure that people’s liberties to leave political communities are balanced carefully with the needs of justice for those who are not so mobile. In doing so, she provides a framework for us to think about what justice and social contract theories demand in a globalized world.

Dagan draws on the metaphor of the social contract. The social contract is the idea that members of a political community co-author their rights and obligations together. Taxation is necessary to fund the activities of the state to enforce other obligations and to provide a set of social goods that allow members of the state to flourish. But because tax is coercive justice is also necessary. Dagan talks about justice with a twist on the familiar tax concepts of horizontal and vertical equity. For horizontal equity is a thicker concept. It requires treating people with equal regard based on all aspects of one’s personhood. Vertical equity is also required, because it fits the concept of distributive justice that animates all social contract theories outside of strict libertarianism. Finally, taxation and the social contract require membership. That means the sharing of benefits, burdens, obligations, and voice with one another in a political community.

Dagan then points to two concepts that disrupt the social contract: mobility and fragmentation. Mobility is the concept that people can move jurisdictions. Mobility encourages states to compete in providing the bundle public goods at the lowest cost. The problem with mobility is intertemporal. The biggest concern is that a state may provide people with a social good, like education, and then the person leaves before the community can recoup its costs.

Fragmentation is the idea of breaking about the bundle of public goods and their associated costs. The simplest form of fragmentation is à la carte public goods and services. Dagan analogizes to a day pass that allows a person to use the superior facilities of a different club than the one where they are members. So too people can pick and use social goods that other states provide. Some examples of à la carte public goods are choice of law provisions in contracts or foreign company listing on a U.S. exchange to access a broader capital market. A deeper form of fragmentation is unbundling. While a traditional à la carte arrangement allows one to purchase the day pass to a new political community, people are still paying subscription fees to their original state. Unbundling cuts the cord, as it were, allowing these people to pick and choose what services in what regime they will pay for without having to cover the underlying subscription costs of membership in one state.

Dagan then outlines the benefits and concerns to the social contract that mobility and fragmentation require. The biggest benefit is a liberty benefit of exiting a state and going to a new one. But Dagan expresses concern that not everyone actually can exercise this liberty to exit, and if too many people exit it may hamper the ability of those who remain to co-author their society’s narrative.

On efficiency grounds, mobility and fragmentation create murky results. On the one hand they may encourage competition for the efficient creation of public goods at the lowest costs. But they also may deter long-term investments due to the timing mismatch.

With both vertical and horizontal equity Dagan points to some serious concerns. Usually those who are best able to access mobility and fragmentation are those who are wealthier. That puts states in the difficult position of not wanting to tax these people too much and cause them to leave, but to tax them enough to meet the demands of distributive justice. On horizontal equity, Dagan points to the concern that those who are more likely or able to leave may get better treatment. Sometimes that can help, such as with certain minorities. But usually those who can leave and have better treatment are those with greater means, and that in turn undermines the concept of equal regard for members of the community.

Finally, with regard to membership, Dagan finds a complex web. On the one hand, the ability to exit provides a credible threat and amplifies voice. But not everyone has these options. She also is concerned that public goods may become overly commodified. Additionally, she worries about loyalty to the community. On the one hand, those with means to easily exit but instead stay are committed to the community. But others may opportunistically leave and thereby frustrate the ability of the community to make long-term investments.

Dagan argues that in addressing globalization in taxation we need a nuanced view. We want to ensure that there are some of the benefits of mobility and fragmentation without allowing it to undermine the political community of the nation state, for which we have as of yet no other options. In particular, Dagan calls for greater policing of non-subscription options. But she also highlights that the line drawing between abusive non-subscription and legitimate hosting of foreigners in a state is a difficult one.

Dagan’s piece does the important work of framing the key matters facing international tax and other issues that transcend the borders of the nation-state. Separating out mobility from fragmentation and highlighting the growth of non-subscription allows us to have a more thoughtful and nuanced debate. It helps us to recognize as she points out that there are numerous benefits to members of the political community and the political community itself with globalization, but there are harms that have to be managed. Trying to get specific about what those harms are rather than painting matters with the broad brush of globalized mobility of people and capital provides us a language to move beyond slogans and into the work of trying to figure out how to capture the best of all worlds.

Dagan’s piece also raises the key questions of what all of us owe each other in a set of nested relationships. The social contract and democratic institutions operate within the nation-state. But as she shows in both tax and other matters, issues now transcend the nation-state. Dagan asks us to think not only what we owe each other in our own political communities, but what we owe each other across communities and how we make those transcendent obligations stick.