Premium
Tax Enforcement Policy and the Provision of Public Goods with the Presence of Tax Havens
Author(s) -
Chu Hsun
Publication year - 2014
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12046
Subject(s) - tax haven , economics , ad valorem tax , tax reform , tax avoidance , indirect tax , tax credit , value added tax , tax competition , double taxation , international economics , public economics , tax revenue , direct tax , enforcement , monetary economics , political science , law
Abstract A tax competition model is presented to investigate the effects of tax havens on the public good provision. We show that when countries facing a rise in tax havens change their tax enforcement strategies in response, the existence of tax havens may result in a higher level of equilibrium public good provision as compared to the case with no tax havens. Accordingly, tax havens could be welfare enhancing for non‐haven countries. This result offers a possible explanation for the recent empirical evidence that the corporate tax revenues in high‐tax countries have actually increased with the growth in the flow of foreign direct investment to tax havens.