Bilateral responsive regulation and international tax competition: An agent‐based simulation. Issue 3 (1st May 2021)

• Record Type: Journal Article
• Authors: Gerbrands, Peter; Unger, Brigitte; Ferwerda, Joras
• Is Part Of: Regulation & governance. Volume 16:Issue 3(2022)
• Page Start: 760
• Page End: 780
• Publication Date: 2021-05-01
• Subjects: agent‐based model -- automatic exchange of information -- country‐by‐country reporting -- responsive regulation -- tax avoidance and evasion -- tax compliance; Delegated legislation -- Periodicals; Corporate governance -- Periodicals; 320.05
• DOI: 10.1111/rego.12397
• Languages: English
• ISSNs: 1748-5983

Abstract

Abstract: Country‐by‐Country Reporting and Automatic Exchange of Information have recently been implemented in European Union (EU) countries. These international tax reforms increase tax compliance in the short term. In the long run, however, taxpayers will continue looking abroad to avoid taxation and, countries, looking for additional revenues, will provide opportunities. As a result, tax competition intensifies and the initial increase in compliance could reverse. To avoid international tax reforms being counteracted by tax competition, this paper suggests bilateral responsive regulation to maximize compliance. This implies that countries would use different tax policy instruments toward other countries, including tax and secrecy havens. Our agent‐based simulation finds that a differentiated policy response could increase tax compliance by 6.54 percent, which translates into an annual increase of €105 billion in EU tax revenues on income, profits, and capital gains. Corporate income tax revenues in France, Spain, and the UK alone would already account for €35 billion.