Who Benefits from Multinational Tax Law Ambiguity?

28 Pages Posted: 16 Sep 2003

See all articles by Anja De Waegenaere

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Richard C. Sansing

Tuck School of Business at Dartmouth

J. Wielhouwer

VU University Amsterdam

Date Written: September 9, 2003

Abstract

This paper uses a strategic tax compliance model to examine taxpayer reporting and tax authority audit strategies in an international setting with two tax authorities. The setting features both information asymmetry between the taxpayer and the tax authorities and tax law ambiguity. The latter creates the possibility of each country trying to tax the same income. We study the effect of the probability of tax law ambiguity on the strategies and payoffs of the taxpayer and the tax authorities. The analysis of the model yields three surprising insights. First, an increase in tax law ambiguity can decrease the taxpayer's expected tax liability. Second, an increase in tax law ambiguity can decrease expected government revenues, net of audit costs. Third, an increase in tax law ambiguity can increase social welfare by decreasing the deadweight loss associated with tax compliance.

Keywords: Tax compliance, multinational taxation, double taxation

JEL Classification: H25, H23, H87

Suggested Citation

De Waegenaere, Anja M.B. and Sansing, Richard C. and Wielhouwer, Jacco L., Who Benefits from Multinational Tax Law Ambiguity? (September 9, 2003). Tuck Business School Working Paper No. 03-27. Available at SSRN: https://ssrn.com/abstract=442720 or http://dx.doi.org/10.2139/ssrn.442720

Anja M.B. De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Richard C. Sansing (Contact Author)

Tuck School of Business at Dartmouth ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0392 (Phone)
603-646-1308 (Fax)

Jacco L. Wielhouwer

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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