Tax Enforcement Policy and the Provision of Public Goods with the Presence of Tax Havens

Hsun Chu

Scottish Journal of Political Economy, 2014, vol. 61, issue 3, 304-321

Abstract: type="main" xml:id="sjpe12046-abs-0001">

A tax competition model is presented to investigate the effects of tax havens on the public good provision. We show that when countries facing a rise in tax havens change their tax enforcement strategies in response, the existence of tax havens may result in a higher level of equilibrium public good provision as compared to the case with no tax havens. Accordingly, tax havens could be welfare enhancing for non-haven countries. This result offers a possible explanation for the recent empirical evidence that the corporate tax revenues in high-tax countries have actually increased with the growth in the flow of foreign direct investment to tax havens.

Date: 2014
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Working Paper: Tax Enforcement Policy and the Provision of Public Goods with the Presence of Tax Havens (2013)
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