INFORMATION SHARING AND TAX COMPETITION AMONG GOVERNMENTS

The residence-based principle has been proposed as a second-best measure to the full international coordination of capital tax policies. This system requires that tax authorities have full information about the foreign investments of their residents. However, the degree of information transmission among governments can be considered as a strategic variable. We show that under some features of the tax system there will not be any information sharing, while there are institutional arrangements under which governments may transmit partial information for strategic purposes. We also show that full information sharing is not necessarily a Pareto optimum.