Incentives and Information Exchange in International Taxation

CentER Discussion Paper No. 2004-54

20 Pages Posted: 22 Jul 2004

See all articles by Michael Keen

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Jenny E. Ligthart

Tilburg University - CentER, Department of Economics; University of Groningen - Faculty of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 2004

Abstract

The exchange of taxpayer-specific information between national tax authorities has recently emerged as a key and controversial topic in international tax policy discussions, most notably with the OECD's harmful tax practices project and the EU's savings tax initiative. This paper analyses the effects of information exchange and withholding taxes, recognizing that countries which agree to exchange information do not forfeit the ability to levy withholding taxes, and also focusing in particular on the effects of innovative revenuesharing arrangements. Amongst the findings are that: (i) the transfer of withholding tax receipts to the residence country, as planned in the EU, has no effect on equilibrium tax rates, but acts purely as a lump sum transfer; (ii) in contrast, allocating some of the revenue from information exchange to the source country - counter to usual practice (though no less so than the EU agreement) - would have adverse strategic effects on total revenue; (iii) nevertheless, any withholding tax regime is Pareto dominated by information exchange combined with appropriate revenue sharing; and, in particular, (iv) sharing of the additional revenues raised from information provided, while efficiency-reducing, could be in the interests of large (high-tax) countries as a means of persuading small (low-tax) countries to provide that information voluntarily.

Keywords: International tax competition, tax information exchange, international tax evasion, withholding taxes

JEL Classification: H77, H87, F42

Suggested Citation

Keen, Michael and Ligthart, Jenny E., Incentives and Information Exchange in International Taxation (June 2004). CentER Discussion Paper No. 2004-54. Available at SSRN: https://ssrn.com/abstract=567081 or http://dx.doi.org/10.2139/ssrn.567081

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Jenny E. Ligthart (Contact Author)

Tilburg University - CentER, Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 8755 (Phone)
+31 13 466 4032 (Fax)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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