Taxing multinationals: The scope for enforcement cooperation

Policymakers seeking to raise more tax revenues from multinational enterprises have two alternatives: rates or devote resources improve compliance. Tougher enforcement increases the cost of profit shifting, and thus mitigates competition. We present a tax-competition model with policy instruments (the corporate rate tightness enforcement). In line Organisation for Economic Cooperation Development's Base Erosion Profit Shifting project, we analyze scope cooperation among asymmetric countries, considering that taxes are set noncooperatively. show low-tax country may fail cooperate if asymmetry is large enough havens would never agree cooperate. Then identify drivers cooperation. The first driver complementarity actions across countries. This because efficiency loss dispersion greater under complementarity. second leadership by high-tax country, which acts as level-playing field in competition reduces extent disagreement on enforcement.