The Political Geography of Tax H(E)Avens and Tax Hells

Posted: 11 Nov 2001

See all articles by Anke S. Kessler

Anke S. Kessler

Simon Fraser University (SFU) - Department of Economics; University of Bonn - Economic Science Area; Centre for Economic Policy Research (CEPR)

Nico A. Hansen

Apax Partners and Co.

Abstract

The paper develops a simple multi-jurisdictional model of residential and political choice. Analyzing the interplay of migration, local policies, and geographic factors, we show that equilibrium tax regimes depend on the geographical size of jurisdictions. If geographical differences are modest or small, jurisdictions independently conduct similar tax policies and average incomes converge. In contrast, if the relative size differentials are substantial, i.e. there are very small and large jurisdictions in the system, tax h(e)avens and tax hells emerge. In equilibrium, small jurisdictions are inhabited by wealthy households and conduct low tax policies (tax heavens) while poor households live in large jurisdictions where taxes are high (tax hells). We argue that our results can provide an explanation for the existence and the characteristics of tax havens, as well as some observed regularities in the population structure and the tax pattern of municipalities in the U.S.

Keywords: Tax Havens, Multi-Community Models, Tiebout, Stratification

JEL Classification: H24, H71, H73

Suggested Citation

Kessler, Anke S. and Hansen, Nico A., The Political Geography of Tax H(E)Avens and Tax Hells. American Economic Review, Vol. 91, No. 4, 2001. Available at SSRN: https://ssrn.com/abstract=288941

Anke S. Kessler (Contact Author)

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
604-291-3443 (Phone)
604-291-5944 (Fax)

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
+49 228 739 246 (Phone)
+49 228 739 221 (Fax)

HOME PAGE: http://www.wipol.uni-bonn.de/~kessler/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nico A. Hansen

Apax Partners and Co.

Possartstrasse 11
D-81679 Muenchen
Germany

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