Cross-Border Tax Arbitrage: a Law and Economic Approach

Abstract

This paper is about cross-border tax arbitrage. The paper takes a law and economics approach to determine whether cross-border tax arbitrage reduces economic efficiency. Having established that there are economic harms arising from cross-border tax arbitrage, appropriate governmental responses are considered. Game theory, in particular the prisoner’s dilemma, is considered in order to determine the challenges that governments face in responding to cross-border tax arbitrage. In addition, focal points of the international tax regime and tax harmonisation induced by tax competition are considered that a game theoretic perspective.