Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279324 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10573
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
An international tax haven is usually a low-tax jurisdiction that seeks to attract investment by foreign investors. But, there are many state and local jurisdictions within federal systems that set zero tax rates on personal or corporate income, consumption, property, and wealth in an effort to attract activity from other high-tax jurisdictions. I discuss whether subnational tax havens are distinct from intense tax competition. I conclude that in a federal system, the economic implications of the two may be similar, but the policy responses differ subtly. A survey of the empirical evidence on the effect of zero or very low tax rates indicates that the lowest tax jurisdiction may disproportionately benefit from non-real base shifting, but real and avoidance responses also arise in response to smaller tax differentials between non-havens. Turning to the corporate income tax, I discuss how legal rules such as formula apportionment, economic nexus, and incorporation rules influence tax competition and the avoidance behaviors of multistate companies.
Subjects: 
tax haven
tax competition
state and local public finance
regulatory competition
corporate charters
JEL: 
H71
H73
H77
K22
K34
R51
Document Type: 
Working Paper
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