Keywords:
Tax Havens,
Migration, Fiscal Federalism, Redistribution
JEL--Classification: H71, H73
The paper
explains the existence and the characteristics of tax havens through the
interplay of political and geographical factors. In a system of independent
democratic jurisdictions among which individuals are mobile, equilibrium tax
regimes depend on the relative geographical size of the jurisdictions. If geographical differences are modest or
small, jurisdictions independently conduct similar tax policies and average
incomes converge. In contrast, if the relative size differentials are
substantial, i.e. there are very small and large jurisdictions in the system,
tax h(e)avens and tax hells emerge. In equilibrium, small jurisdictions are
inhabited by wealthy households and conduct low tax policies (tax heavens)
while poor households live in large jurisdictions where taxes are high (tax
hells).
Copyright © 1998 Anke Kessler