Coercion in international tax cooperation : identifying the prerequisites for sanction threats by a great power

Abstract

Tax cooperation puts offshore centers worse off, as their compensation for forgone profits is a hard political sell, and unlikely to produce the same spillover effects on wages and employment as the attraction of foreign tax base. Coercion by a great power thus seems to be a prerequisite for successful international cooperation in tax matters. Great power status is based on internal market size. Governments become substantially more likely to use this power through sanction threats against tax havens when two factors coincide: (1) domestic constraints preventing a shift of the tax burden to labor and consumption and (2) scope for redistributive cooperation benefitting great power banks or multinationals. Hypotheses are tested in an analysis of tax negotiations at OECD level between 1996 and 2014.