Cartelizing Taxes: Understanding the OECD’s Campaign Against 'Harmful Tax Competition'

Abstract

Formed in 1961 to promote global economic and social well-being, the Organization for Economic Cooperation and Development (OECD) has become the collective voice of rich countries on international tax issues. After an initial focus on improving commerce through addressing double taxation issues, the organization shifted to a focus on restricting tax competition and increasing automatic exchanges of tax information. In this paper we analyze the reasons for this shift in policy focus. After describing the history of the OECD’s work on taxation, we examine the OECD's project against “harmful tax competition” as it has played out since its launch in the 1990s. We analyze the mechanisms behind the project from a public choice perspective. While typical economic models portray tax competition as a prisoner’s dilemma between governments, a more powerful perspective is of the incentives of politicians and bureaucrats. We conclude that the project against tax competition is an example of the interplay between the interests of politicians and international bureaucrats, which illustrates the role international organizations play in competition among interest groups.

Keywords: tax competition, OECD, international organizations, offshore finance