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Bargaining away the tax base: the north-south politics of tax treaty diffusion

Hearson, Martin (2016) Bargaining away the tax base: the north-south politics of tax treaty diffusion. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.u6hln7k9v043


Developing countries have signed over a thousand tax treaties, at a cost of millions of pounds a year, based on a myth. The predominant legal rationale for so-called ‘double taxation’ treaties is outdated, while the evidence that they attract investment into developing countries is inconclusive. Although the financial gains from tax treaties are split between the treasuries of capital exporting countries and their multinational companies, most of the costs are incurred by the fiscs of capital importing countries. Rational actor models alone cannot explain the diffusion of tax treaties to the global South. The missing piece of the picture is ideas. As developing countries have formed their identities as fiscal states, a century-old narrative describing the deleterious effects of double taxation resulting from international fiscal anarchy has shaped different actors’ preferences. From the perspective of those focused on investment promotion, tax treaties are part of what a state does when it wants to compete for investment, regardless of the evidence about their actual effects. Meanwhile, officials developing the tax system have looked to the OECD as the source of sophisticated technical knowledge, and learned to regard tax treaties as the way to ensure ‘acceptable standards’ for taxing multinational companies. This thesis uses interviews with treaty negotiators, observations of international meetings, and archival research, including case studies from the UK, Zambia, Vietnam and Cambodia selected through a mixed methods strategy. It identifies three diffusion mechanisms: competition by developed countries for outward investment opportunities, ‘boundedly rational’ competition by developing countries for inward investment, and efforts by tax specialists to disseminate fiscal standards. It also highlights two scope conditions. First, competition for inward investment can be blocked if political actors are concerned about raising corporate tax revenue. Second, where the preferences of specialists and nonspecialists in a country do not align, control over veto points is a prerequisite to diffusion.

Item Type: Thesis (PhD)
Additional Information: © 2016 Martin Hearson
Library of Congress subject classification: J Political Science > JZ International relations
Sets: Departments > International Relations
Supervisor: Chwieroth, Jeffrey

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