A game-theoretic analysis of international tax compliance

Patrice Pieretti and Giuseppe Pulina

Economic Modelling, 2024, vol. 134, issue C

Abstract: This paper analyzes the response of low-tax jurisdictions to growing political pressure to comply with international tax avoidance regulations. We develop a game-theoretic model in which a low-tax country attempts to attract multinational companies by offering tax planning and/or an environment conducive to real economic activities. Our analysis reveals that while it is optimal to stigmatize non-compliant jurisdictions, political pressure may backfire by encouraging multinationals to shift their operations to low-tax jurisdictions if the reputational harm on them is not too high. Furthermore, we show that high-tax countries may find it optimal to tolerate aggressive tax planning to a certain extent, particularly when international mobility is high and the reputational harm on offshore substance-based investment is relatively low. These results underscore the complexities of enforcing tax compliance and suggest the need for a nuanced approach to tax regulation.

Keywords: Aggressive tax planning; Tax and infrastructure competition; Multinational firms; Value-driven FDIs; Political pressure (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999324000464
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Tax havens under international pressure: How do they react? (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:134:y:2024:i:c:s0264999324000464

DOI: 10.1016/j.econmod.2024.106690

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().