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When Do Developing Countries Negotiate Away Their Corporate Tax Base?

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  • Martin Hearson

Abstract

Developing countries have concluded thousands of bilateral tax treaties, which restrict their ‘taxing rights’ over international investment. Qualitative case studies of these negotiation outcomes emphasize power politics, knowledge asymmetries and negotiating capability in the eventual distribution of taxing rights between signatories, yet such insights are absent from cross†country quantitative work. This paper bridges the gap by replicating two quantitative studies, introducing new data on countries' ability to mobilize tax revenue and the outcomes of tax treaty negotiations. It provides statistical support for the insights from qualitative research. The size of a government's revenue base, and its reliance on corporate tax, might affect the salience of the revenue sacrifice in policy makers' minds. These variables influence the likelihood of signing a tax treaty and the particular concessions made. Power asymmetries between signatories lead to more unequal distributions of taxing rights away from developing countries, in contrast to the findings of earlier studies. Developing countries also become better negotiators as they gain experience. © 2018 UNU†WIDER. Journal of International Development published by John Wiley & Sons, Ltd.

Suggested Citation

  • Martin Hearson, 2018. "When Do Developing Countries Negotiate Away Their Corporate Tax Base?," Journal of International Development, John Wiley & Sons, Ltd., vol. 30(2), pages 233-255, March.
    • Handle: RePEc:wly:jintdv:v:30:y:2018:i:2:p:233-255
    DOI: 10.1002/jid.3351
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    Cited by:

    1. Amutabi, Cyprian, 2023. "Domestic Resource Mobilization for Economic Development in Africa: Challenges, Policy Options, and Prospects in the New Horizon," MPRA Paper 118372, University Library of Munich, Germany.
    2. Laudage, Sabine, 2020. "Corporate tax revenue and foreign direct investment: Potential trade-offs and how to address them," IDOS Discussion Papers 17/2020, German Institute of Development and Sustainability (IDOS).
    3. Garcia-Bernardo, Javier & Janský, Petr, 2024. "Profit shifting of multinational corporations worldwide," World Development, Elsevier, vol. 177(C).
    4. Eyitayo-Oyesode Oladiwura Ayeyemi, 2020. "Source-Based Taxing Rights from the OECD to the UN Model Conventions: Unavailing Efforts and an Argument for Reform," The Law and Development Review, De Gruyter, vol. 13(1), pages 193-227, January.
    5. Kudła, Janusz & Kopczewska, Katarzyna & Stachowiak-Kudła, Monika, 2023. "Trade, investment and size inequalities between countries and the asymmetry in double taxation agreements," Economic Modelling, Elsevier, vol. 122(C).

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