Tax havens, income shifting, and redistributive taxation

Abstract

This paper investigates the effects of tax havens on nonhaven countries’ redistributive policies. We consider that a nonhaven country contains individuals with different labor productivities. A tax is imposed on the income, and the revenues are evenly distributed. The tax rate is determined by majority voting, which reflects the median voter’s preferences. The presence of havens gives rise to the mobility of tax bases, which may increase the nonhaven country’s tax rate in two ways. First, it leads to a median voter with a lower productivity; second, it may enlarge the marginal tax revenue from raising the tax rate. In addition, we find that a stricter antihavens regulation may lower the tax rate. We further show that income shifting is likely to reduce the amount of the transfers. The case of tax evasion is also taken into consideration.

Incentive pay for policy‐makers?

“…Finally, there are examples that even income tax itself is not progressive or that rich people can evade taxation: For instance, in some cities in Switzerland, wealthy individuals may be able to negotiate an agreement with tax authorities. 3 Moreover, there are many ways to lower the tax burden on capital income for rich people, for example, by locating firms which manage their wealth in so-called "tax havens" (see for instance, Desai et al, 2006;Lai, 2019, andSlemrod &Wilson, 2009).…”

Lobbying and the international fight against tax havens

“…There is also a literature on international taxation and interest groups (see, e.g., Chu, Cheng, & Lai, ; Janeba & Schjelderup, ; Lai, , ). In contrast to this study, these authors have looked at domestic interest groups rather than offshore lobbying.…”