In this section, I introduce a simple sequential game theoretic model to
explain the institutional trajectory of the double tax regime. The twin problems of international taxation – namely, double taxation and undertaxation
– are represented by two different strategic structures, which have
been tackled sequentially, rather than simultaneously. Only after the problem
of double taxation had been solved did the problem of under-taxation
become relevant. This is because it is only worthwhile for individuals
and enterprises to engage in trans-border investment if DTA is in place.
Avoiding double taxation is part of the liberalization of the international
economy; this is a necessary condition for international under-taxation to
arise. In the following, I derive the strategic structures of both problems,
and then consider the resultant expectations for institutional design and
its development over time.