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The institutional Design of international double Taxation Avoidance

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  • Rixen, Thomas

Abstract

This article analyzes the institutional design of international double tax avoidance. The basic argument is that double tax avoidance exhibits the strategic structure of a coordination game with a distributive conflict. The distribution of tax revenues depends on the asymmetry of investment flows between treaty partners. Since investment flows are defined dyadically, bilateral bargaining can best accommodate countries’ concern for the distribution of tax revenues and other economic benefits connected to the tax base. Moreover, because there are no serious externality problems with bilateral agreement, this solution is also viable. At the same time, there is a need for a multilateral organization to disseminate information and shared practices in the form of a model convention that provides a focal point for bilateral negotiations. The strategic structure of a coordination game can also explain why the institutions of double tax avoidance do not have to be equipped with third-party enforcement capabilities. Instead, the Mutual Agreement Procedure (MAP) is interpreted as a device to deal with the fact that double tax agreements (DTAs) are incomplete contracts.

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  • Rixen, Thomas, 2008. "The institutional Design of international double Taxation Avoidance," MPRA Paper 8322, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:8322
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    9. Rixen, Thomas, 2008. "The institutional design of international double taxation avoidance [Das Design der internationalen Institutionen zur Vermeidung von Doppelbesteuerung]," Discussion Papers, Research Unit: Global Governance SP IV 2008-302, WZB Berlin Social Science Center.
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    1. Rixen, Thomas, 2008. "The institutional design of international double taxation avoidance [Das Design der internationalen Institutionen zur Vermeidung von Doppelbesteuerung]," Discussion Papers, Research Unit: Global Governance SP IV 2008-302, WZB Berlin Social Science Center.

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    More about this item

    Keywords

    Double Taxation; Rational Institutional Design; International Political Economy;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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