Globalization, technological advances, and the mobility of capital resulted in international tax competition, in which sovereign countries lower their tax rates on income earned by foreigners within their borders to attract both portfolio and direct investment. Tax competition, in turn, threatens to undermine the individual and corporate income taxes, which traditionally have been the main source of revenue for modern welfare states. The response of developed countries has been, first, to shift the tax burden from (mobile) capital to (less mobile) labor, and second, when further increased taxation of labor becomes politically and economically difficult, to cut the social safety net. Thus, globalization and tax competition led to a fiscal crisis for countries that wish to continue to provide social insurance programs to their citizens while aging populations, increased income inequality, job insecurity, and income volatility that result from globalization render such social insurance more necessary. This chapter contends that both economic efficiency and equity among individuals and among nations support limits on tax competition.