Essays on international public finance
Description
This dissertation is composed of two essays on international aspects of public finance. The objective is to carry the theoretical analysis of income tax evasion, and fiscal competition into an international context The first essay models income tax evasion as a part of a portfolio choice between domestic and foreign investment. The latter is termed as 'capital flight' because of its illicit character. As opposed to the previous models of tax evasion, this model recognizes the non-simultaneity of tax evasion and portfolio decisions in a two-stage setting. The transactions costs are explicitly modelled, and the uncertainty about the returns of domestic and foreign investments is introduced, as an addition to the audit uncertainty. It is found that an increase in government enforcement might be ineffective at reducing tax evasion and capital flight; it might even exacerbate the problem under some specified conditions. The change at the tax revenue of the government and the change at the amount of tax evaded are also unpredictable, and depend on the relation between the individual's risk-taking characteristics and the enforcement parameters The second essay models fiscal competition for a multinational corporation (MNC) as a game between two host countries. In a world of certainty, the size of the host's tax increases with the ratio of the site's inherent profits to the MNC's zero; the winning host must subsidize the MNC to the extent of its benefits. When the countries are not sure of the value of their sites, then they decrease their subsidy offers to the MNC as their uncertainty increases. The intuition is that each country can lower its subsidy offer without the certain knowledge that it will drive the firm to its rival. Like the silent master of a cartel, uncertainty prevents fiscal competition between similar countries from driving their returns to zero