Description
When seeking to attracting Foreign Direct Investment (FDI), low-income countries face competing demands: Many low-income countries deliberately use preferential tax regimes to attract FDI as part of their economic development strategy, often following the advice of international organizations. At the same time, many foreign investors include the reputation of an investment location and particularly its adherence to ‘good governance’ standards, of which ‘good tax governance’ – the adherence to best practices in tax policy mainly developed by the OECD – is a part, in their considerations when choosing investment locations. This creates a dilemma in the case of the OECD/G20 Inclusive Framework on BEPS (IF): while on the one hand participation in the IF may enhance the reputation by signalling adherence to OECD best practices in international tax policy, it requires the adoption of minimum standards that curtail the scope of low-income states to use tax incentives to attract FDI. Building on a mixed-methods strategy comprising panel and interview data, this paper explores how tax policy makers balance these competing demands. It argues that the decision (not) to join the IF is shaped by three mechanisms: business lobbying, the diffusion of ideas by transnational experts, and the domestic politicization of taxation.
