The Discrepancy between Ideal and Real World International Tax Guidelines

 Essay regarding The Difference between Great and Real World International Tax Rules

WU International Taxation Research Daily news Series

Number 2012 - 10

The disparity between " ideal” and " actual world” intercontinental tax rules. What pushes politicians when making the rules?

Julia Braun

Editors: Eva Eberhartinger, Michael Lang, Martin Zagler (Vienna School of Economics and Business), Erich Kirchler (University of Vienna) and Rupert Sausgruber (University of Innsbruck)

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The Discrepancy among „ideal" and „real world" international duty rules. What drives political figures when making the guidelines? *

Julia Braun‡

August 25, 2012

The current international tax system diverges considerably from a theoretically " optimal” duty system. A single reason for this kind of discrepancy might be that politicians strive for other objectives rather than making tax rules that comply with the theoretical concepts of maximum taxation. In the following paragraphs, I summary the techniques used in the economic and legal literary works to explain the motivations with the people producing international duty policy and contrast these observations in the " real world”. This post illustrates which the making of international duty policy is affected by numerous factors: domestic pressure groups and the framework of the international tax system, along with selfinterested politicians and bureaucrats. Considering the complexness of the conditions under which usually international tax policy is made, it is not astonishing that foreign tax rules deviates from the principles characterizing ideal taxation. Keywords: worldwide tax insurance plan, optimal taxation, global efficiency, national welfare, Public Decision Theory, Video game Theory

JEL Classification: F50, F53, H21, H25, H87, K34

-----------------------------------------------* I would like to thank Avoi Eberhartinger, Daniel Shaviro, Martin Zagler, as well as the participants of the doctoral workshop of Foreign Tax Plan at the WU Vienna University or college of Economics and Business for their useful comments. Every remaining problems and inaccuracies are, of course , my own. Economic support from the Austrian Scientific research Fund (FWF grant no . W 1235G16) is gratefully acknowledged. ‡

DIBT Important Program in International Business Taxation at WU Vienna University of Economics and Business, julia. [email protected] ac. at


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1 . Introduction

Foreign tax rules are frequently belittled as breaking the principles of efficiency, collateral, and simplicity. This observation raises problem as to where the divergence among ideal and " real-world” tax guidelines originates. The hypothesis of this article is that this difference is inter alia due to the fact that the politicians making international taxes rules really do not keep pace with create " ideal” rules in the mild of taxes theory but instead have various other objectives in mind. It is quite evident that " it simply cannot simply be thought that actors pursue the goals of equity and efficiency per se” (Rixen, 2008: 83). But what goals do politicians strive for? This content overviews the approaches found in the financial and legal literature to explain the motivations behind those people who make worldwide tax plan, contrasting them with some " real world” observations. The purpose is to display that the inspirations of those involved in international tax policy contribute to the inefficiency, inequity, and difficulty of the foreign tax program. The article takings as follows. Following having explicated the characteristics of international tax policy (Section 2), I will elucidate much more detail the theoretical rules that foreign tax rules should conform to (Section 3). Subsequently, alternate explanations from the objectives of international tax policy will be presented and analyzed for their relevance in detailing international duty rules even as see them in the real life (Section 4). Specifically, Let me examine the propositions that fundamental...

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