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When do developing countries negotiate away their corporate tax base?

Martin Hearson

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Developing countries have concluded thousands of bilateral tax treaties, which restrict their ‘taxing rights’ over international investment. Qualitative case studies of these negotiation outcomes emphasize power politics, knowledge asymmetries and negotiating capability in the eventual distribution of taxing rights between signatories, yet such insights are absent from cross‐country quantitative work. This paper bridges the gap by replicating two quantitative studies, introducing new data on countries' ability to mobilize tax revenue and the outcomes of tax treaty negotiations. It provides statistical support for the insights from qualitative research. The size of a government's revenue base, and its reliance on corporate tax, might affect the salience of the revenue sacrifice in policy makers' minds. These variables influence the likelihood of signing a tax treaty and the particular concessions made. Power asymmetries between signatories lead to more unequal distributions of taxing rights away from developing countries, in contrast to the findings of earlier studies. Developing countries also become better negotiators as they gain experience.

Keywords: developing countries; foreign direct investment; corporate taxation; double taxation; treaties; multinational corporations (search for similar items in EconPapers)
JEL-codes: F53 H25 K34 O23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law, nep-pbe and nep-pub
Date: 2018-03-13
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Published in Journal of International Development, 13, March, 2018, 30(2), pp. 233-255. ISSN: 0954-1748

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