Tax Enforcement Policy and the Provision of Public Goods with the Presence of Tax Havens

Chu, Hsun (2013): Tax Enforcement Policy and the Provision of Public Goods with the Presence of Tax Havens.

Abstract

A tax competition model is presented to investigate the effects of tax havens on the public good provision. We show that when countries facing a rise in tax havens change their tax enforcement strategies in response, the existence of tax havens may result in a higher level of equilibrium public good provision as compared to the case with no tax havens. Accordingly, tax havens could be welfare-enhancing for non-haven countries. This result offers a possible explanation for the recent empirical evidence that the corporate tax revenues in high-tax countries have actually increased with the growth in the flow of FDI to tax havens.

• Item Type: MPRA Paper
• Language: English
• Keywords: tax havens; enforcement policy; tax competition
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods

References

Bacchetta, P. and M. P. Espinosa (1995), Information sharing and tax competition among governments, Journal of International Economics 39, 103-121.

Brueckner, J. K. (2000), A Tiebout/tax-competition model, Journal of Public Economics 77, 285-306.

Bucovetsky, S. and A. Haufler (2008), Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed? Journal of International Economics 74, 188-201.

Cremer, H. and F. Gahvari (1997), Tax competition and tax evasion, Nordic Journal of Political Economy 24, 89–104.

Cremer, H. and F. Gahvari (2000), Tax evasion, fiscal competition, and economic integration, European Economic Review 44, 1633–1657.

Desai, M. A., C. F. Foley and J. R. Hines Jr. (2006a), The demand for tax haven operations, Journal of Public Economics 90, 513-531.

Desai, M. A., C. F. Foley and J. R. Hines Jr. (2006b), Do tax haven operations divert economic activity? Economics Letters 90, 219–224.

Dharmapala, D. (2008), What problems and opportunities are created by tax havens? Oxford Review of Economic Policy 24, 661-679.

Dharmapala, D. and J. R. Hines Jr. (2009), Which countries become tax havens? Journal of Public Economics 93, 1058-1068.

Hansen L. G., S. Krarup and C. S. Russell (2006), Enforcement and information strategies, Journal of Regulatory Economics 30, 45-61.

Haufler, A. and M. Runkel (2012), Firms’ financial choices and thin capitalization rules under corporate tax competition, European Economic Review 56, 1087-1103.

Haufler, A. and G. Schjelderup (2000), Corporate tax systems and cross country profit shifting, Oxford Economic Papers 52, 306-325.

Hines J. R. Jr. (2006), Will social welfare expenditures survive tax competition? Oxford Review of Economic Policy 22, 330-348.

Hines, J. R. Jr. and E. M. Rice (1994), Fiscal paradise: foreign tax havens and American business, Quarterly Journal of Economics 109, 149-182.

Hong, Q. and M. Smart (2010), In praise of tax havens: international tax planning and foreign direct investment, European Economic Review 54, 82-95.

Johannesen, N. (2010), Imperfect tax competition for profits, asymmetric equilibrium and beneficial tax havens, Journal of International Economics 81, 253-264.

Keen, M. and J. E. Ligthart (2006), Information sharing and international taxation: A primer, International Tax and Public Finance 13, 81-110.

Krautheim, S. and T. Schmidt-Eisenlohr (2011), Heterogeneous firms, ‘profit shifting’ FDI and international tax competition, Journal of Public Economics 95, 122-133.

Lai, Y. B. (2010), The political economy of capital market integration and tax competition, European Journal of Political Economy 26, 475-487.

Lockwood, B. and M. Makris (2006), Tax incidence, majority voting and capital market integration, Journal of Public Economics 90, 1007-1025.

Makris, M. (2003), International tax competition: There is no need for cooperation in information sharing, Review of International Economics 11, 555-567.

OECD (1998), Harmful tax competition: an emerging global issue, Organisation for Economic Co-operation and Development, Paris, France.

OECD (2000), Towards global tax cooperation: progress in identifying and eliminating harmful tax practices, Organisation for Economic Co-operation and Development, Paris, France.

OECD (2008), Tax and economic growth, Economics department working paper 620, Organisation for Economic Co-operation and Development, Paris, France.

Peralta, S., W. Xavier and T. Ypersele (2006), Should countries control international profit shifting? Journal of International Economics 68, 24–37.

Slemrod, J. and J. D. Wilson (2009), Tax competition with parasitic tax havens, Journal of Public Economics 93, 1261-1270.

Stöwhase, S. (2005), Asymmetric capital tax competition with profit shifting, Journal of Economics 85, 175-196.

Stöwhase, S. and C. Traxler (2005), Tax evasion and auditing in a federal economy, International Tax and Public Finance 12, 515-531.

Ulph, D. (2009), Avoidance policies - A new conceptual framework, Working Paper, Oxford University.

Weichenrieder, A. and H. Windischbauer (2008), Thin-capitalization rules and company responses - Experience from German legislation, Working Paper, University of Frankfurt.

Wilson, J. D. (1999), Theories of tax competition, National Tax Journal 52, 269–304.