Tax havens under international pressure: How do they react?

Patrice Pieretti and Giuseppe Pulina

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: This paper contributes to the literature about tax havens by providing a more comprehensive analysis of their role. The aim is to analyze how low-tax jurisdictions can react to growing international pressure exerted, by high-tax countries, to enforce compliance with anti aggressive tax planning standards. To this end, we model how a small tax haven tries to be attractive to multinationals located in a high-tax region by providing aggressive tax planning services and/or a favorable environment for local activities. The model demonstrates that under realistic conditions it is optimal to stigma- tize a non-compliant low-tax jurisdiction, even if its reputation for being attractive to real foreign investments is thereby affected. Another result is that a welfarist government could, under certain circumstances, optimally tolerate some aggressive tax planning. Finally, the paper shows that the threat of political pressure against uncooperative tax havens can induce, under specific conditions, voluntary compliance.

Keywords: Aggressive tax planning; Tax havens; Multinational _rms; Value driven FDIs; Political pressure (search for similar items in EconPapers)
JEL-codes: F21 F23 H23 H25 H26 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: A game-theoretic analysis of international tax compliance (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:15-03

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