Description
The past decade has seen a remarkable proliferation of multilateral tax cooperation not only among OECD and G20 countries, but also among countries in the Global South. This stands in stark contrast to expectations of existing literature, according to which governments are reluctant to commit to multilateral tax cooperation frameworks to protect their national tax sovereignty, particularly when they rely on tax incentives to attract FDI. Yet, multilateral tax cooperation frameworks such as the OECD’s Inclusive Framework have seen an impressive uptake by countries across the world.
Why do governments commit to multilateral tax cooperation frameworks regardless of these concerns? Building on theories of bureaucratic politics, this paper argues that a government’s stance towards multilateral tax cooperation frameworks reflects the outcome of bargaining processes between different governmental stakeholders, each of which holds distinct preferences in international tax policy. Building on novel qualitative data from Bangladesh, Sri Lanka, and Vietnam, the paper finds that the institutional configuration of bureaucratic bargaining processes enables different ideas about international tax policy to shape policy outcomes. In particular, two aspects explain the stance of lower-income countries towards multilateral tax cooperation frameworks: first, the degree of institutional separation of fiscal from investment policy, and second, the relationship between bureaucratic stakeholders and political principals.
The paper makes three contributions. First, it conceptualizes international tax policy as distinct issue area and identifies the role that multilateral tax cooperation plays in achieving different policy objectives in international tax policy. Second, by using novel data from South and Southeast Asia, the paper adds to an emerging literature on the political economy of international tax policy that has largely neglected lower-income countries. Third, the paper illustrates how models of bureaucratic bargaining can be applied to non-Western contexts and to issue areas other than foreign policy.
