DP10519 Coordination and the fight against tax havens

Author(s): Kai A. Konrad, Tim Stolper
Publication Date: March 2015
Keyword(s): initiatives against harmful tax practices, tax evasion, tax havens
JEL(s): G20, H26, H87
Programme Areas: Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10519

The success or failure of the fight against tax havens is the outcome of a coordination game between a tax haven and its potential investors. Key determinants are the costly international pressure and the haven country's revenue pool. The latter is determined endogenously by the decisions of many individual investors. Our findings explain why some havens attract large sources of international investment and earn large revenues while other countries do not, and why their profits are not competed away. We identify a trade-off between fighting tax havens and high tax rates or, similarly, small fines for disclosed tax evasion.