Quotation Braun, Julia, Zagler, Martin. 2018. The true art of the tax deal: Evidence on aid flows and bilateral double tax agreements. World Economy, 41 (6), 1478-1507.




Of a total of 2,976 double tax agreements (DTAs), some 60% are signed between a developing and a developed economy. As DTAs shift taxing rights from capital‐importing to capital‐exporting countries, the latter inherently benefit more from the agreements. In this paper, we argue that capital exporters use foreign aid to incite capital importers into signing DTAs. We demonstrate in a theoretical model that in a deal, one country does not trump the other, but that the deal must be mutually beneficial. In the case of an asymmetric DTA, this requires compensation from the capital‐exporting country to the capital‐importing country. Examining DTAs that are signed between donor and recipient countries between 1991 and 2012, and using a fixed effects Poisson model, we find that bilateral foreign aid commitments increase by 22% in the year of the signature of a DTA. Evaluated at the sample mean, this translates into around US$ six million additional aid commitments in a DTA signatory year.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal World Economy
Citation Index SSCI
WU-Journal-Rating new FIN-A, VW-C
Language English
Title The true art of the tax deal: Evidence on aid flows and bilateral double tax agreements
Volume 41
Number 6
Year 2018
Page from 1478
Page to 1507
Reviewed? Y
URL https://onlinelibrary.wiley.com/doi/abs/10.1111/twec.12628
DOI http://dx.doi.org/10.1111/twec.12628
Open Access N
JEL K33, F53, H25, H87, D82


Zagler, Martin (Details)
Braun, Julia (ZEW Mannheim, Germany)
Research Institute for International Taxation FI (Details)
Department of Economics (Crespo Cuaresma) (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5311 Public finance (Details)
5341 Economic policy (Details)
5343 Economic theory (Details)
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