Tax evasion: how government cooperation could be a game changer
This paper models how a coalition of countries could force a tax haven to cooperate. The coalition is built around a common capital tax rate and a joint tariff on the imports from the tax haven. The tariff is the threat used to induce the tax haven to cooperate. Thanks to a game theoretical approach, we describe how the members of the coalition bargain to set the common capital tax. Then the optimal tariff and its incidence are derived. We show that a mutually beneficial common capital tax can be set in the coalition. Then, we demonstrate that a tariff on tax haven imports is efficient to force the tax haven to cooperate if the import level from the tax haven is sufficiently high and if the imported goods are normal.