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Fighting Multiple Tax Havens

MPS-Authors
http://pubman.mpdl.mpg.de/cone/persons/resource/persons51208

Konrad,  Kai A.
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

http://pubman.mpdl.mpg.de/cone/persons/resource/persons51180

Elsayyad,  May
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

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Citation

Konrad, K. A., & Elsayyad, M. (2011). Fighting Multiple Tax Havens. Working Paper of the Max Planck Institute for Tax Law and Public Finance, 2011-02.


Cite as: http://hdl.handle.net/11858/00-001M-0000-000F-3E3B-4
Abstract
This paper develops a competition theory framework that evaluates an important aspect of the OECD's Harmful Tax Practices Initiative against tax havens. We show that the sequential nature of the process is harmful and more costly than a "big bang" multilateral agreement. The sequentiality may even prevent the process from being completed successfully. Closing down a subset of tax havens reduces competition among the havens that remain active. This makes their "tax haven business" more profitable and shifts a larger share of rents to these remaining tax havens, making them more reluctant to give up their "tax haven business". Moreover, the outcome of this process, reducing the number of tax havens, but not eliminating them altogether, may reduce welfare in the OECD.