Abstract
AbstractThis paper investigates the effects of tax havens on nonhaven countries’ redistributive policies. We consider that a nonhaven country contains individuals with different labor productivities. A tax is imposed on the income, and the revenues are evenly distributed. The tax rate is determined by majority voting, which reflects the median voter’s preferences. The presence of havens gives rise to the mobility of tax bases, which may increase the nonhaven country’s tax rate in two ways. First, it leads to a median voter with a lower productivity; second, it may enlarge the marginal tax revenue from raising the tax rate. In addition, we find that a stricter antihavens regulation may lower the tax rate. We further show that income shifting is likely to reduce the amount of the transfers. The case of tax evasion is also taken into consideration.
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