Incentive Theory 3 Sample Clauses

Incentive Theory 3. Tax Competition With Parasitic Tax Xxxxxx - Xxxxxxx & Xxxxxx (2006): 58

Incentive Theory 3. Tax Competition With Parasitic Tax Xxxxxx – Xxxxxxx & Xxxxxx (2006): The main assumptions; Xxxxxxx & Xxxxxx (2006) assume that the world consists of a large number of countries. Some in which they operate as tax xxxxxx, and others in which they do not. The countries are assumed to be asymmetrical. The tax xxxxxx are modeled as countries offering a tool to escape national taxation imposed by residence countries. The equilibrium price for this tool is assumed to depend on demand. The demand is related to the tax systems Conclusions; Xxxxxxx & Xxxxxx (2006) conclude that the elimination of tax xxxxxx makes all jurisdictions better off, given that they currently are not tax xxxxxx. Under the assumption of constant returns to scale, and that the decision to become a tax haven is endogenous, the authors show that the smaller tax xxxxxx may be worse off if they give up their status as tax xxxxxx. The intuition behind this conclusion is as follows. The non-haven countries suffer from a welfare loss due to the existence of tax xxxxxx since individuals and companies “waste” resources trying to evade taxes. Due to this, the government “wastes” resources 29 i denotes country i. trying to combat evasion activities. By eliminating tax xxxxxx, these countries will be better off by avoiding this deadweight loss. This logic does not apply to the smallest tax xxxxxx. The model assumes that the cost of becoming a tax haven increases with country size. At the same time, the productivity of offering concealment services remains independent of country size. The cost of becoming a tax haven is related to setting the tax rate of capital to a negligible level, which leads to a welfare loss. Costs can also occur related to increasing the opaqueness of the domestic financial system. The benefits of becoming a tax haven are related to the sale of concealment services. The authors discuss how the optimal level of the supply of concealment services is set. In the view of Slemrod & Xxxxxx (2006), the non-haven countries will attempt to terminate a tax haven if the jurisdiction offers too high a level of concealment services. According to this view, the optimal amount of concealment services sold is a level independent of country size. The consequence is that the revenues from concealment services are independent of the size of a country. This provides the smaller jurisdictions with a greater incentive to become a tax haven, since the revenue is divided on a smaller number of inhabitants...