IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwwuw/wuwp242.html
   My bibliography  Save this paper

The true art of the tax deal: Evidence on aid flows and bilateral double tax agreements

Author

Listed:
  • Julia Braun

    (Centre for European Economic Research (ZEW))

  • Martin Zagler

    (Department of Economics, Vienna University of Economics and Business)

Abstract

Out of a total of 2,976 double tax agreements (DTAs), some 60% are signed between a developing and a developed economy. As DTAs shift taxing rights from capital importing to capital exporting countries, the prior would incur a loss. We demonstrate in a theoretical model that in a deal one country does not trump the other, but that the deal must be mutually beneficial. In the case of an asymmetric DTA, this requires compensation from the capital exporting country to the capital importing country. We provide empirical evidence that such compensation is indeed paid, for instance in the form of bilateral official development assistance, which increases on average by six million US$ in the year of the signature of a DTA.

Suggested Citation

  • Julia Braun & Martin Zagler, 2017. "The true art of the tax deal: Evidence on aid flows and bilateral double tax agreements," Department of Economics Working Papers wuwp242, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp242
    Note: PDF Document
    as

    Download full text from publisher

    File URL: https://epub.wu.ac.at/5459/1/wp242.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chisik, Richard & Davies, Ronald B., 2004. "Asymmetric FDI and tax-treaty bargaining: theory and evidence," Journal of Public Economics, Elsevier, vol. 88(6), pages 1119-1148, June.
    2. Molenaers, Nadia & Dellepiane, Sebastian & Faust, Jorg, 2015. "Political Conditionality and Foreign Aid," World Development, Elsevier, vol. 75(C), pages 2-12.
    3. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Development aid and international politics: Does membership on the UN Security Council influence World Bank decisions?," Journal of Development Economics, Elsevier, vol. 88(1), pages 1-18, January.
    4. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2008. "Does US aid buy UN general assembly votes? A disaggregated analysis," Public Choice, Springer, vol. 136(1), pages 139-164, July.
    5. Alesina, Alberto & Dollar, David, 2000. "Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
    6. Nancy Qian, 2015. "Making Progress on Foreign Aid," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 277-308, August.
    7. Dimitri Paolini & Pasquale Pistone & Giuseppe Pulina & Martin Zagler, 2016. "Tax treaties with developing countries and the allocation of taxing rights," European Journal of Law and Economics, Springer, vol. 42(3), pages 383-404, December.
    8. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    9. Thomas Rixen & Peter Schwarz, 2009. "Bargaining over the Avoidance of Double Taxation: Evidence from German Tax Treaties," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(4), pages 442-471, December.
    10. Dimitri Paolini & Pasquale Pistone & Giuseppe Pulina & Martin Zagler, 2016. "Tax treaties with developing countries and the allocation of taxing rights," European Journal of Law and Economics, Springer, vol. 42(3), pages 383-404, December.
    11. Clist, Paul, 2011. "25Years of Aid Allocation Practice: Whither Selectivity?," World Development, Elsevier, vol. 39(10), pages 1724-1734.
    12. Ilyana Kuziemko & Eric Werker, 2006. "How Much Is a Seat on the Security Council Worth? Foreign Aid and Bribery at the United Nations," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 905-930, October.
    13. Bittschi, Benjamin & Borgloh, Sarah & Moessinger, Marc-Daniel, 2016. "On tax evasion, entrepreneurial generosity and fungible assets," ZEW Discussion Papers 16-024, ZEW - Leibniz Centre for European Economic Research.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Azémar, Céline & Dharmapala, Dhammika, 2019. "Tax sparing agreements, territorial tax reforms, and foreign direct investment," Journal of Public Economics, Elsevier, vol. 169(C), pages 89-108.
    2. Anh D. Pham & Ha Pham & Kim Cuong Ly, 2019. "Double Taxation Treaties as a Catalyst for Trade Developments: A Comparative Study of Vietnam’s Relations with ASEAN and EU Member States," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(4), pages 1-16, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Acht, Martin & Omar Mahmoud, Toman & Thiele, Rainer, 2014. "Corrupt governments receive less bilateral aid: Governance and the delivery of foreign aid through non-government actors," Kiel Working Papers 1901, Kiel Institute for the World Economy (IfW).
    2. Lanati, Mauro & Thiele, Rainer, 2018. "The impact of foreign aid on migration revisited," World Development, Elsevier, vol. 111(C), pages 59-74.
    3. Acht, Martin & Mahmoud, Toman Omar & Thiele, Rainer, 2015. "Corrupt governments do not receive more state-to-state aid: Governance and the delivery of foreign aid through non-state actors," Journal of Development Economics, Elsevier, vol. 114(C), pages 20-33.
    4. Juergen Bitzer & Erkan Goeren, 2018. "Foreign Aid and Subnational Development: A Grid Cell Analysis," Working Papers V-407-18, University of Oldenburg, Department of Economics, revised Mar 2018.
    5. Axel Dreher & Sarah Langlotz & Silvia Marchesi, 2017. "Information Transmission And Ownership Consolidation In Aid Programs," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1671-1688, October.
    6. Okullo, Samuel J. & Reynès, Frédéric, 2011. "Can reserve additions in mature crude oil provinces attenuate peak oil?," Energy, Elsevier, vol. 36(9), pages 5755-5764.
    7. Minasyan, Anna, 2018. "US aid, US educated leaders and economic ideology," European Journal of Political Economy, Elsevier, vol. 55(C), pages 244-257.
    8. Ambrocio, Gene & Hasan, Iftekhar, 2019. "Friends for the benefits: The effects of political ties on sovereign borrowing conditions," Research Discussion Papers 13/2019, Bank of Finland.
    9. Kim, Nam Kyu & Kroeger, Alex, 2017. "Rewarding the introduction of multiparty elections," European Journal of Political Economy, Elsevier, vol. 49(C), pages 164-181.
    10. Axel Dreher & Andreas Fuchs, 2011. "Rogue Aid? The Determinants of China's Aid Allocation," CESifo Working Paper Series 3581, CESifo.
    11. Frot, Emmanuel & Olofsgård, Anders & Berlin, Maria Perrotta, 2014. "Aid Effectiveness in Times of Political Change: Lessons from the Post-Communist Transition," World Development, Elsevier, vol. 56(C), pages 127-138.
    12. Thilo Bodenstein & Jörg Faust, 2017. "Who Cares? European Public Opinion on Foreign Aid and Political Conditionality," Journal of Common Market Studies, Wiley Blackwell, vol. 55(5), pages 955-973, September.
    13. Hearson, Martin, 2018. "When do developing countries negotiate away their corporate tax base?," LSE Research Online Documents on Economics 87762, London School of Economics and Political Science, LSE Library.
    14. Koch, Dirk-Jan & Dreher, Axel & Nunnenkamp, Peter & Thiele, Rainer, 2009. "Keeping a Low Profile: What Determines the Allocation of Aid by Non-Governmental Organizations?," World Development, Elsevier, vol. 37(5), pages 902-918, May.
    15. Bjørnskov, Christian & Schröder, Philipp J.H., 2013. "Are debt repayment incentives undermined by foreign aid?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1073-1091.
    16. Reinsberg, Bernhard, 2015. "Foreign Aid Responses to Political Liberalization," World Development, Elsevier, vol. 75(C), pages 46-61.
    17. Fuchs, Andreas & Vadlamannati, Krishna Chaitanya, 2013. "The Needy Donor: An Empirical Analysis of India’s Aid Motives," World Development, Elsevier, vol. 44(C), pages 110-128.
    18. Hearson, Martin, 2018. "Transnational expertise and the expansion of the international tax regime: imposing ‘acceptable’ standards," LSE Research Online Documents on Economics 88351, London School of Economics and Political Science, LSE Library.
    19. Masaki, Takaaki, 2016. "Coups d’État and Foreign Aid," World Development, Elsevier, vol. 79(C), pages 51-68.
    20. Broich, Tobias, 2017. "Do authoritarian regimes receive more Chinese development finance than democratic ones? Empirical evidence for Africa," China Economic Review, Elsevier, vol. 46(C), pages 180-207.

    More about this item

    Keywords

    developing countries; foreign aid; double taxation agreements;
    All these keywords.

    JEL classification:

    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwwuw:wuwp242. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics). General contact details of provider: http://www.wu.ac.at/economics/en .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.