TY  - JOUR
AU  - Slemrod,Joel
AU  - Wilson,John D.
TI  - Tax Competition With Parasitic Tax Havens
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12225
PY  - 2006
Y2  - May 2006
UR  - http://www.nber.org/papers/w12225
L1  - http://www.nber.org/papers/w12225.pdf
N1  - Author contact info:
Joel Slemrod
University of Michigan Business School
701 Tappan Street
Room R5396
Ann Arbor, MI  48109-1234
Tel: 734/936-3914
Fax: 734-615-4323
E-Mail: jslemrod@umich.edu

John Wilson
Bureau of Statistics
Middle Eastern Department, Rm 3-544
700 19th Street, NW
Washington, DC 20431
E-Mail: jwilson@itic.org
AB  - We develop a tax competition framework in which some jurisdictions, called tax havens, are parasitic on the revenues of other countries. The havens use real resources to help companies camouflage their home-country tax avoidance, and countries use resources in an attempt to limit the transfer of tax revenues to the havens. The equilibrium price for this service depends on the demand and supply for such protection. Recognizing that taxes on wage income are also evaded, we solve for the equilibrium tax rates on mobile capital and immobile labor, and we demonstrate that the full or partial elimination of tax havens would improve welfare in non-haven countries, in part because countries would be induced to increase their tax rates, which they have set at inefficiently low levels in an attempt to attract mobile capital. We also demonstrate that the smaller countries choose to become tax havens, and we show that the abolishment of a sufficiently small number of the relatively large havens leaves all countries better off, including the remaining havens.
ER  -