Second, this article’s focus on the DTA regime yields an alternative understanding
of tax competition. In the existing literature, tax competition is
treated as a natural corollary to economic globalization and liberalization;
it is assumed to be an exogenously given force; the focus is on its effects in
terms of welfare, distribution or national policy autonomy. By contrast, the
causes of tax competition have received no attention. Of course, globalization
is a necessary condition for tax competition but it is not a sufficient one.
Whether there is tax competition and what form it takes crucially depends
on the rules that determine the consequences for particular cross-border
transactions. Thus, in order to understand the dynamics of tax competition,
we must also consider the regulation of these transactions, codified
in the international DTA regime. The strategic choices and opportunities
of taxpayers and governments are shaped by the double tax regime, which
thus provides the institutional foundation for tax competition. In this paper
I show that tax competition is not exogenously given: its existence
and the specific form it takes are the endogenous consequence of prior
institutional choices by governments in the area of DTA.