Negotiated Tax Havens

52 Pages Posted: 30 Nov 2018 Last revised: 17 Feb 2021

See all articles by Kevin Markle

Kevin Markle

Michigan State University

Leslie A. Robinson

Dartmouth College - Tuck School of Business; Dartmouth College - Accounting

Date Written: February 16, 2021

Abstract

Tax subsidies alter the distribution of tax burdens in ways that blur the ability of researchers and policymakers to measure tax incentives at the country level, to clearly define a tax haven, and to understand firm-level tax avoidance. In the European Union (EU), control of “state aid” restricts tax subsidy competition while permitting tax rate competition; there is no U.S. corollary. The EU’s unique regulatory environment creates novel data for examining the determinants and effects of tax subsidies granted on a discriminatory basis. We find that better-governed countries are more likely to grant subsidies and to direct larger amounts of this “tax aid” toward mobile firms (i.e., firms that are part of a multinational corporation). Despite the EU regulations, we find that mobile firms enjoy significantly larger ETR reductions from tax aid than do immobile firms, even in countries already offering low tax rates. Our findings are important in light of ongoing debates about the appropriate role of preferential tax regimes in global tax competition.

Keywords: tax policy, state aid, tax competition, preferential tax regimes, tax subsidies

JEL Classification: H25, F23

Suggested Citation

Markle, Kevin and Robinson, Leslie, Negotiated Tax Havens (February 16, 2021). Tuck School of Business Working Paper No. 3280683, Available at SSRN: https://ssrn.com/abstract=3280683 or http://dx.doi.org/10.2139/ssrn.3280683

Kevin Markle (Contact Author)

Michigan State University ( email )

East Lansing, MI
United States

Leslie Robinson

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Dartmouth College - Accounting ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-4018 (Phone)

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