Lobbying and the international fight against tax havens

Despite a variety of measures taken by high-tax countries, the international fight against tax havens so far remains rather ineffective. This paper introduces offshore lobbying as a possible explanation for this observation. The author analyzes the international fight against tax havens in a two-country model, in which the onshore country exerts pressure on domestic profit-shifting firms and the tax haven's government lobbies against this measure. In this framework, he finds that pressure and lobbying are strategic substitutes and that there is an extensive margin incentive for offshore lobbying. Furthermore, when starting at initially high costs for profit shifting, a reduction in these costs leads to fewer profit-shifting firms. Finally, when allowing for a second low-tax jurisdiction, the overall level of lobbying increases, but less than proportionally.