Tax competition: advantage of being a small country?
It is sometimes argued that, due to their size, small states have a considerable advantage compared to larger national economies when they try to achieve a more efficient budget and fiscal system. It is added that these bigger states have often more expenses to consider which doesn't allow them to lower tax rates as easily as smaller countries. If the smaller states are situated close or in reach of a bigger country, they could then attract capital flows out of the bigger country by adopting favorable tax regimes which the bigger country simply wouldn't be able to afford. Put differently, smaller countries' lower tax burdens are only possible at the expense of the bigger countries' economies. In a way and under this theory, the smaller states would only survive thanks to the free-rider principle.
This briefly described phenomenon is certainly not entirely untrue. Capital certainly moves quickly to the most favorable place. Rich Germans are good clients of Swiss banks for example. However, maybe that's just part of the rules of the game. I feel uncomfortable to call this somehow "immoral". If smaller states can indeed free-ride, then it must also be admitted that bigger states have other characteristics which trigger other advantages. Essentially and obviously, they are more powerful. Smaller countries don't allege that this is somehow immoral. They accept it as a given fact. For example, Switzerland doesn't claim to become a member of the U.N. Security Council, let alone a permanent member of it. More powerful actors do not refrain from making use of their own resources in order to achieve their goals. Nevertheless, larger economies like Germany, France or the European Union still snivel about Switzerland's favorable tax regimes and call it "unfair" (or harmful...) that Switzerland's lower taxes attract European taxpayers. They of course do not hesitate one second to exert heavy pressure on states which do not comply with their standards.
Given the nature of international relations I consider that it is absolutely normal that smaller states too persist in utilizing their possibilites against their neighbors in order to enhance their own situation. If it happens at the expense of other economies, then that's the way it is.