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The institutional Design of international double Taxation Avoidance

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  • Rixen, Thomas

Abstract

This article analyzes the institutional design of international double tax avoidance. The basic argument is that double tax avoidance exhibits the strategic structure of a coordination game with a distributive conflict. The distribution of tax revenues depends on the asymmetry of investment flows between treaty partners. Since investment flows are defined dyadically, bilateral bargaining can best accommodate countries’ concern for the distribution of tax revenues and other economic benefits connected to the tax base. Moreover, because there are no serious externality problems with bilateral agreement, this solution is also viable. At the same time, there is a need for a multilateral organization to disseminate information and shared practices in the form of a model convention that provides a focal point for bilateral negotiations. The strategic structure of a coordination game can also explain why the institutions of double tax avoidance do not have to be equipped with third-party enforcement capabilities. Instead, the Mutual Agreement Procedure (MAP) is interpreted as a device to deal with the fact that double tax agreements (DTAs) are incomplete contracts.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8322.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:8322

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Keywords: Double Taxation; Rational Institutional Design; International Political Economy;

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  1. Richard Chisik & Ronald B. Davies, 2001. "Asymmetric FDI and Tax-Treaty Bargaining: Theory and Evidence"," University of Oregon Economics Department Working Papers 2001-2, University of Oregon Economics Department, revised 01 Jun 2002.
  2. Ronald B. Davies, 2004. "Tax Treaties and Foreign Direct Investment: Potential versus Performance," International Tax and Public Finance, Springer, vol. 11(6), pages 775-802, November.
  3. John Whalley, 2001. "Puzzles Over International Taxation of Cross Border Flows of Capital Income," NBER Working Papers 8662, National Bureau of Economic Research, Inc.
  4. McIntyre, Michael J., 1993. "Guidelines for Taxing International Capital Flows: The Legal Perspective," National Tax Journal, National Tax Association, vol. 46(3), pages 315-21, September.
  5. Rixen, Thomas, 2008. "The institutional design of international double taxation avoidance," Discussion Papers, Research Unit: Global Governance SP IV 2008-302, Social Science Research Center Berlin (WZB).
  6. Koremenos, Barbara & Lipson, Charles & Snidal, Duncan, 2001. "The Rational Design of International Institutions," International Organization, Cambridge University Press, vol. 55(04), pages 761-799, September.
  7. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
  8. Abbott, Kenneth W. & Snidal, Duncan, 2000. "Hard and Soft Law in International Governance," International Organization, Cambridge University Press, vol. 54(03), pages 421-456, June.
  9. Hans-Werner Sinn, 1990. "Taxation and the Birth of Foreign Subsidiaries," NBER Working Papers 3519, National Bureau of Economic Research, Inc.
  10. David G. Hartman, 1982. "Tax Policy and Foreign Direct Investment in the United States," NBER Working Papers 0967, National Bureau of Economic Research, Inc.
  11. Drezner, Daniel W., 2000. "Bargaining, Enforcement, and Multilateral Sanctions: When Is Cooperation Counterproductive?," International Organization, Cambridge University Press, vol. 54(01), pages 73-102, December.
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Cited by:
  1. Rixen, Thomas, 2008. "The institutional Design of international double Taxation Avoidance," MPRA Paper 8322, University Library of Munich, Germany.

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