Rixen, Thomas and Rohlfing, Ingo (2005): The Political Economy of Bilateralism and Multilateralism: Institutional Choice in Trade and Taxation.
Download (656kB) | Preview
Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes’ similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement.
|Item Type:||MPRA Paper|
|Original Title:||The Political Economy of Bilateralism and Multilateralism: Institutional Choice in Trade and Taxation|
|Keywords:||Theories of International Cooperation; International Trade; International Double Taxation; Bilateralism; Multilateralism|
|Subjects:||F - International Economics > F5 - International Relations, National Security, and International Political Economy > F59 - Other
F - International Economics > F5 - International Relations, National Security, and International Political Economy > F53 - International Agreements and Observance ; International Organizations
|Depositing User:||Thomas Rixen|
|Date Deposited:||09 Oct 2006|
|Last Modified:||27 Nov 2016 02:16|
Aggarwal, Vinod K., Robert O. Keohane, and David B. Yoffie. 1987. The Dynamics of Negotiated Protectionism. American Political Science Review 81 (2):345-366. Arnold, Brian J., and Michael J. McIntyre. 1995. International Tax Primer. Den Haag: Kluwer Law International. Bagwell, Kyle, and Robert W. Staiger. 2002. The economics of the world trading system. Cambridge, Mass.: MIT Press. Baldwin, Robert E. 1996. The Political Economy of Trade Policy: Integrating the Perspectives of Economists and Political Scientists. In The Political Economy of Trade Policy, edited by R. C. Feenstra, G. M. Grossman and D. A. Irwin. Cambridge, Mass.; London: MIT Press. Barkin, J. Samuel. 2004. Time Horizons and Multilateral Enforcement in International Cooperation. International Studies Quarterly 48 (2):363-382. Brauner, Yariv. 2003. An International Tax Regime in Crystallization. Tax Law Review 56:259-328. Brown, Andrew G. 2003. Reluctant Partners: A History of Multilateral Trade Cooperation, 1850-2000, Studies in international trade policy. Ann Arbor: University of Michigan Press. Caporaso, James A. 1993. International Relations Theory and Multilateralism: The Search for Foundations. In Multilateralism matters: The Theory and Praxis of an Institutional Form, edited by J. G. Ruggie. New York: Columbia University Press. Chisik, Richard, and Ronald B. Davies. 2004a. Asymmetric FDI and Tax-Treaty-Bargaining: Theory and Evidence. Journal of Public Economics 88: 1119-1148. Chisik, Richard, and Ronald B. Davies. 2004b. Gradualism in tax treaties with irreversible foreign direct investment. International Economic Review 45 (1):113-139. Conybeare, John A.C. 1987. Trade Wars: The Theory and Practice of International Commercial Rivalry. New York: Columbia University Press. Council of Europe, and OECD. 2003. Joint Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters. http://www.oecd.org/dataoecd/11/29/2499078.pdf. Croome, John. 1999. Reshaping the World Trading System: A History of the Uruguay Round. 2nd ed. 2nd edition. The Hague: Kluwer Law International. Dagan, Tsilly. 2002. The Costs of International Tax Cooperation. In Globalization and the Welfare State, edited by E. Benvenisti, G. Nolte and D. Barak-Erez. Berlin, Heidelberg, New York: Springer Verlag. Davies, Ronald B. 2004. Tax Treaties and Foreign Direct Investment: Potential vs. Performance. International Tax and Public Finance 11 (6):775-802. Dehejia, Vivek H., and Philipp Genschel. 1999. Tax Competition in the European Union. Politics & Society 27 (3):403-430. Evans, John W. 1971. The Kennedy Round in American Trade Policy: The Twilight of the GATT? Cambridge: Harvard University Press. Fearon, James. 1998. Bargaining, Enforcement, and International Cooperation. International Organization 52 (2):269-305. Frisch, Daniel J. 1990. The Economics of International Tax Policy: Some Old and New Approaches. Tax Notes International 47:581-591. Genschel, Philipp. 2005. Globalization and the Transformation of the Tax State, in: . European Review 13(S1):53-71. Genschel, Philipp, and Thomas Plümper. 1997. Regulatory competition and international co-operation. Journal of European Public Policy 4 (4):626-642. Graetz, Michael J. 2001. Taxing International Income: Independent Principles, Outdated Concepts and Unsatisfactory Policies. Tax Law Review 54:261-336. Green, Robert A. 1998. Antilegalistic Approaches to Resolving Disputes Between Governments: A Comparison of the International Tax and Trade Regimes. The Yale Journal of International Law 23 (1):79-139. Hoekman, Bernard M., and M. M. Kostecki. 2001. The political economy of the world trading system: the WTO and beyond. 2nd ed. Oxford; New York: Oxford University Press. Irwin, Douglas A. 1993. Multilateral and Bilateral Trade Policies in the World Trading System: A Historical Perspective. In New dimensions in regional integration, edited by J. De Melo and A. Panagariya. Cambridge: Cambridge University Press. Jackson, John Howard. 1997. The World Trading System: Law and Policy of International Economic Relations. 2nd ed. Cambridge: MIT Press. Kindleberger, Charles P. 1989. Commercial policy between the wars. In The Cambridge economic history of Europe. Vol. 8: The industrial economies: The development of economic and social policies., edited by P. Mathias and S. Pollard. Cambridge: Cambridge University Press. Koremenos, Barbara, Charles Lipson, and Snidal Duncan. 2001. The Rational Design of International Institutions. International Organization 55 (4):761-799. League of Nations. 1923. Report on Double Taxation, Submitted to the Financial Committee by Professors Bruins, Einaudi, Seligman and Sir Josiah Stamp. Geneva: League of Nations Publications E.F.S.73.F.19. League of Nations. 1927. Double Taxation and Tax Evasion. Report presented by the Committee of Technical Experts on Double Taxation and Tax Evasion. C. 216. M 85. 1927 II. Li, Jinyan. 2003. International Taxation in the Age of Electronic Commerce: A Comparative Study. Toronto: Canadian Tax Foundation. Mansfield, Edward D., and Eric Reinhardt. 2003. Multilateral Determinants of Regionalism: The Effects of GATT/WTO on the Formation of Preferential Trading Arrangements. International Organization 57 (4):829-862. Martin, Lisa L. 1993. The Rational State Choice of Multilateralism. In Multilateralism matters : The Theory and Praxis of an Institutional Form, edited by J. G. Ruggie. New York: Columbia University Press. McKeown, Timothy J. 1984. Firms and Tariff Regime Change: Explaining the Demand for Protection. World Politics 36 (2):215-233. Messere, Kenneth. 1993. The Precursors and Successors of the New OECD Model Tax Convention on Income and Capital. European Taxation 33 (8):246-251. Milner, Helen V. 1999. The Political Economy of International Trade. Annual Review of Political Science 2:91-114. Milner, Helen V., and David B. Yoffie. 1989. Between Free-Trade and Protectionism: Strategic Trade-Policy and a Theory of Corporate Trade Demands. International Organization 43 (2):239-272. Mundell, Robert A. 1957. International Trade and Factor Mobility. American Economic Review 47(3):321-356. Musgrave, Peggy B. 1991. Fiscal Coordination and Competition in an International Setting. In Retrospectives on Public Finance, edited by L. Eden. Durham: Duke University Press. Odell, John S. 2000. Negotiating the World Economy. Cornell: Cornell University Press. OECD. 1998. Harmful Tax Competition. An Emerging Global Issue. Paris: OECD. OECD. 2003. Model Tax Convention on Income and on Capital, Volume I (Print Binder). Paris: OECD. Olson, Mancur. 1965. The Logic of Collective Action. Public Goods and the Theory of Groups. Cambridge: Harvard University Press. Oye, Kenneth A. 1985. Explaining Cooperation under Anarchy - Hypotheses and Strategies. World Politics 38 (1):1-24. Pahre, Robert. 1998. Reactions and Reciprocity: Tariffs and Trade Liberalization from 1815 to 1914. Journal of Conflict Resolution 42 (4):467-92. Picciotto, Sol. 1992. International Business Taxation. A Study in the Internationalization of Business Regulation. New York: Quorum. Preeg, Ernest H. 1970. Traders and Diplomats: An analysis of the Kennedy Round of negotiations under the General Agreement on Tariffs and Trade. Washington, D.C.: The Brookings Institution. Radaelli, Claudio M. 1998. Game Theory and Institutional Entrepreneurship: Transfer Pricing and the Search for Coordination in International Tax Policy. Policy Studies Journal 26(4):603-619. Rixen, Thomas, and Ingo Rohlfing. 2005. The Political Economy of Bilateralism and Multilateralism. Manuscript. Ruggie, John G. 1982. International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order. International Organization 36 (2):379-415. Ruggie, John G. 1993. Multilateralism - the Anatomy of an Institution. In Multilateralism matters : The Theory and Praxis of an Institutional Form, edited by J. G. Ruggie. New York: Columbia University Press. Schelling, Thomas C. 1980. The Strategy of Conflict. Cambridge, Mass.: Harvard University Press. Sebenius, James K. 1983. Negotiation Arithmetic: Adding and Subtracting Issues and Parties. International Organization 37 (2):281-316. Seligman, Edwin R. A. 1928. Double Taxation and International Fiscal Cooperation. New York: Macmillan. Snidal, Duncan. 1985a. Coordination Versus Prisoners' Dilemma - Implications for International Cooperation and Regimes. American Political Science Review 79 (4):923-942. Snidal, Duncan. 1985b. The Limits of Hegemonic Stability Theory. International Organization 39(4):579-614. Spitaler, Armin. 1936. Das Doppelbesteuerungsproblem bei den direkten Steuern. Reichenberg: Gebrüder Stiepel Ges.m.b.H. Surrey, Stanley S. 1978. United Nations Group of Experts and the Guidelines for Tax Treaties between Developing Countries. Harvard International Law Journal 19 (1):1-65. Tollison, Robert D., and Thomas D. Willett. 1979. An Economic Theory of Mutually Advantageous Issue Linkages in International Negotiations. International Organization 33 (4):425-449. Tsebelis, George. 1990. Nested Games: Rational Choice in Comparative Politics, California series on social choice and political economy ; 18. Berkeley: University of California Press. United Nations. 1998. World Investment Report 1998: Trends and Determinants. New York and Geneva: United Nations Organization. United Nations. 2004. United Nations Treaty Series (http://untreaty.un.org/) 2003 [cited 06/21/2004 2004]. Vann, Richard J. 1991. A Model Tax Treaty for the Asian-Pacific Region? (Part II). Bulletin for International Fiscal Documentation 45 (4):151-63. Whalley, John. 2001. Puzzles Over International Taxation of Cross Border Flows of Capital Income. NBER Working Paper No. w8662. Wilcox, Clair. 1949. A Charter for World Trade. New York: Macmillan. Williamson, Oliver E. 1985. The Economic Institutions of Capitalism. New York: Free Press. Winham, Gilbert R. 1986. International Trade and the Tokyo Round Negotiation. Princeton, N.J.: Princeton University Press. Yoo, Kwang-Yeol. 2003. Corporate Taxation of Foreign Direct Investment Income 1991-2001. In OECD Economics Department Working Papers No. 365. Paris.