The Institutional Design of International Double Taxation Avoidance

WZB Discussion Paper No. SP IV 2008-302

42 Pages Posted: 7 Aug 2008

See all articles by Thomas Rixen

Thomas Rixen

University of Bamberg - Department of Political Science

Date Written: August 7, 2008

Abstract

This article analyzes the institutional design of international double tax avoidance. The basic argument is that double tax avoidance exhibits the strategic structure of a coordination game with a distributive conflict. The distribution of tax revenues depends on the asymmetry of investment flows between treaty partners. Since investment flows are defined dyadically, bilateral bargaining can best accommodate countries' concern for the distribution of tax revenues and other economic benefits connected to the tax base. Moreover, because there are no serious externality problems with bilateral agreement, this solution is also viable. At the same time, there is a need for a multilateral organization to disseminate information and shared practices in the form of a model convention that provides a focal point for bilateral negotiations. The strategic structure of a coordination game can also explain why the institutions of double tax avoidance do not have to be equipped with third-party enforcement capabilities. Instead, the Mutual Agreement Procedure (MAP) is interpreted as a device to deal with the fact that double tax agreements (DTAs) are incomplete contracts.

Suggested Citation

Rixen, Thomas, The Institutional Design of International Double Taxation Avoidance (August 7, 2008). WZB Discussion Paper No. SP IV 2008-302. Available at SSRN: https://ssrn.com/abstract=1210402 or http://dx.doi.org/10.2139/ssrn.1210402

Thomas Rixen (Contact Author)

University of Bamberg - Department of Political Science ( email )

Feldkirchenstrasse 21
96045 Bamberg
Germany

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