The Institutional (Non-)Change in International Taxation
Historically, international tax policy cooperation has only been concerned with the avoidance of double taxation. Empirical results of my preliminary research suggest that the particular institutional setup of double tax avoidance produces, as an unintended side effect of the intended economic liberalization, problems of tax competition, evasion and avoidance: international tax competition is in part endogenously caused by the international institutions of double tax avoidance. These problems, in turn, should cause the international community to increase its efforts in regulating tax competition.
Up to now, however, there have been only tentative attempts to regulate tax competition internationally. This means that double tax avoidance is still continued in its present bilateral form even though a multilateral regulatory institution, which has the power and capacity to enforce binding regulations would be functionally required. Nevertheless, incremental and implicit efforts at reform are being undertaken, which are designed to mitigate against the worst consequences of tax competition. On the one hand, actors do employ selective “rule stretching” in the form of unilateral anti-abuse laws to prevent tax dodging. On the other hand, they build up a kind of multilateral supporting structure in the form of information exchange or “layer” a new regulatory effort on top of the existing institutions, such as the OECD project to eliminate harmful tax practices.
There is evidence to support the supposition that this partial, incomplete adaptation to the functional requirements of tax competition has its roots in the institutional rigidities and path dependencies of the double tax regime. On the one hand, states actually do respond to new challenges through institutional reform; on the other hand, the existing institutions appear to develop a “life of their own”, because states are very cautious not to endanger their coordinating functions.
These observations raise a number of questions which this project tries to address: What are the mechanisms that can best explain the observed path-dependent institutional development? Why did national governments agree to the particular institutional design of double tax avoidance, when they could foresee that this would mean a loss of control in the form of tax competition? Why does the double tax regime in particular, which is based for the most part on “soft law,” prove to be so strong, i.e., change-resistant? If the hypothesis is confirmed that the development of international tax regimes is essentially determined by their own institutional dynamic, which permits these regimes, over the course of time, to escape national government’s efforts to reform them, this would represent a major challenge to the dominant school of thought, which assumes that international regimes are for the most part irrelevant in tax policy and that nation-states alone exercise sovereignty in this policy area.
Relationship to the Research Unit’s Program
The program of the research unit, Transnational Conflicts and International Institutions, attaches particular importance to the investigation of the processes of path dependency and endogenous institutional change propelled by the unintended side effects resulting from earlier efforts at cooperation. By focusing on these issues, the research unit wants to broach themes that have up to now received too little attention in the field of international relations. Whereas the relevance of such processes has been illustrated many times by examples taken from the field of comparative political science, the analysis of these developments has gone largely unattended to in the discipline of international relations. The project sketched above is devoted to theory-based empirical investigation of the side-effects theorem, and is intended to represent a contribution to the aspired conceptualization and systematic development of the theorem for international relations theory.
Rixen, Thomas (2008). From Double Tax Avoidance to Tax Competition: The Institutional Trajectory of International Tax Governance (under review at Review of International Political Economy).
Rixen, Thomas and Schwarz, Peter (2008). Bargaining over the Avoidance of Double Taxation: Evidence from German Tax Treaties. Prepared for the Meeting of the European Public Choice Society, 27 to 30 03, Jena (under review at Finanzarchiv).
Leibrecht, Markus; Rixen, Thomas; and Six, Martin: Double Tax Avoidance and Tax Competition for Mobile Capital. In: Lang, Michael and Devereux, Michael (eds.): International Tax Coordination, forthcoming.
Rixen, Thomas (2008). The Political Economy of International Tax Governance. Basingstoke: Palgrave/McMillan, forthcoming.
Rixen, Thomas, Ingo Rohlfing (2007). The Institutional Choice of Bilateralism and Multilateralism in International Trade and Taxation. International Negotiation, 12 (3): 389-414.
Rixen, Thomas (2006). Steuern und Kooperation: Internationale Zusammenarbeit gegen schädlichen Steuerwettbewerb. In: Stefan A. Schirm (Hg.), Globalisierung. Forschungsstand und Perspektiven. Baden-Baden: Nomos, 2006: 77-98. (Available only in German.)
Rixen, Thomas (2007). Taxation and Cooperation: International Action against Harmful Tax Competition. In Stefan A. Schirm (ed.), Globalization. State of the Art and Perspectives. London: Routledge: 61-80.