Tax Evasion, Tax Competition and the Gains from Nondiscrimination: The Case of Interest Taxation in Europe
This paper uses a game-theoretic approach to analyze the taxation of interest income in Europe in the presence of tax evasion. The model allows the authors to assess the success of various reform proposals. They argue that the tax treatment of nonresidents' interest income plays a crucial role. When decisions on discrimination and on withholding tax rates are made noncooperatively, the outcome is similar to a prisoners dilemma. All countries discriminate but, in equilibrium, internationally mobile portfolio capital evades taxation successfully. In contrast, if all governments did not discriminate, tax competition leads to less tax evasion.
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Volume (Year): 109 (1999)
Issue (Month): 452 (January)
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