The Political Economy of Bilateralism and Multilateralism: Institutional Choice in Trade and Taxation

Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes’ similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement.Theories of International Cooperation; International Trade; International Double Taxation; Bilateralism; Multilateralism

The political economy of bilateralism and multilateralism: Institutional choice in international trade and taxation

Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement. -- Während Handelsbeziehungen durch das multilaterale GATT geregelt werden, beruht die Vermeidung internationaler Doppelbesteuerung auf einem Netzwerk von etwa 2000 bilateralen Verträgen. Da beide Regime die gleiche ökonomische Zielsetzung der Marktliberalisierung haben, stellt die unterschiedliche institutionelle Form ein empirisches Puzzle dar, das wir in diesem Papier lösen. Wir unterscheiden zwischen verschiedenen Phasen internationaler Kooperation und beschreiben zunächst die institutionelle Form in der Bargaining- und Agreement-Phase. Es wird gezeigt, dass die Systeme in der Bargaining-Phase sehr ähnlich sind: beide weisen einen Mix bilateraler und multilateraler Elemente auf. In der Agreement-Phase hingegen findet man Multilateralismus im Handelsregime und Bilateralismus im Steuerregime. Im zweiten Teil des Papiers leiten wir aus den nationalen Interessenkonstellationen in der Handels- und Steuerpolitik einfache spieltheoretische Modelle ab, mit deren Hilfe wir die institutionelle Wahl zwischen bilateraler und multilateraler Kooperation in beiden Phasen erklären. Wir zeigen, dass Staaten nach Verteilungsgewinnen streben, was am besten in bilateralen Verhandlungen erreicht werden kann. Bilaterales Verhandeln führt jedoch zu hohen Transaktionskosten, die durch multilaterale Elemente in den Verhandlungen reduziert werden können (Bargaining-Phase). Abkommen in Handelsbeziehungen sind multilateral, um ein free-riding zu vermeiden, das wiederum aus dem Streben nach Verteilungsgewinnen resultiert. Da free-riding im Steuerregime aufgrund der Spielstruktur kein gravierendes Problem ist, gibt es hier keine Notwendigkeit eines multilateralen Abkommens, so dass man hier Bilateralismus vorfindet (Agreement-Phase).

The political economy of bilateralism and multilateralism : institutional choice in international trade and taxation

Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes’ similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement

The Political Economy of Bilateralism and Multilateralism: Institutional Choice in Trade and Taxation

Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes’ similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement

The Political Economy of Bilateralism and Multilateralism: Institutional Choice in Trade and Taxation

Trade relations are governed by the multilateral GATT, whereas the avoidance of international double taxation rests on a network of around 2000 bilateral treaties. Given the two regimes’ similar economic rationales this difference between bilateralism in international double tax avoidance and multilateralism in the trade regime poses an empirical puzzle. In this paper we develop an answer to this puzzle. Differentiating between different stages of international cooperation, we first describe the institutional form in the bargaining and agreement stages of cooperation. This description shows that the regimes are quite similar in the bargaining stage, both exhibiting a mix of bilateral and multilateral bargaining. However, while agreement is multilateral in the trade regime it is bilateral in taxation. Based on stylized institutional histories of both cases we develop simple game theoretic models incorporating domestic level considerations. Building on these models we then go on to explain the institutional choice between bilateral and multilateral cooperation. We show that state concerns for the distribution of benefits can be best achieved under bilateral bargaining in both regimes. However, in order to lower transaction costs there are also elements of multilateral bargaining. Agreement is multilateral in trade in order to overcome a free-rider problem that results from an interaction of concerns for distribution and enforcement. Since such a problem of free-riding does not exist in taxation, there is no need for binding multilateral agreement

Asset or liability? An analysis of the effect of changes in party membership on partisan ideological change

The role of members of political parties is ambiguous because it entails both benefits and costs. In order to shed light on the question of whether members are an asset or a liability for parties, I examine whether parties use their ideology on a left-right dimension as a collective incentive for the appeal to actual and potential party members. A quantitative analysis of the effects of changes in membership on partisan ideological change, covering 61 parties in 11 Western democracies from the 1950s to the early 1990s, shows that there is a weak, but statistically significant, effect. An additional analysis of two mechanisms by which membership has an effect refutes the alternative explanation that positional changes of the median member account for partisan ideological change. In total, the results indicate that members are both an asset and a liability and that parties try to keep the two in balance

Power and False Negatives in Qualitative Comparative Analysis: Foundations, Simulation and Estimation for Empirical Studies

In Qualitative Comparative Analysis (QCA), empirical researchers use the consistency value as one, if not sole, criterion to decide whether an association between a term and an outcome is consistent with a set-relational claim. Braumoeller (2015) points out that the consistency value is unsuitable for this purpose. We need to know the probability of obtaining it under the null hypothesis of no systematic relation. He introduces permutation testing for estimating the p value of a consistency score as a safeguard against false positives. In this paper, I introduce permutation-based power estimation as a safeguard against false-negative conclusions. Low power might lead to the false exclusion of truth table rows from the minimization procedure and the generation and interpretation of invalid solutions. For a variety of constellations between an alternative and null hypothesis and numbers of cases, simulations demonstrate that power estimates can range from 1 to 0. Ex post power analysis for 6 3 truth table analyses shows that even under the most favorable constellation of parameters, about half of them can be considered low-powered. This points to the value of estimating power and calculating the required number of cases before the truth table analysis

Combining QCA and Process Tracing in Set-Theoretic Multi-Method Research

Schneider, Carsten Q. and Ingo Rohlfing (2013): Combining QCA and Process Tracing in Set-Theoretic Multi-Method Research. Sociological Methods & Research 42 (4): 559-59

What is the Relation Between Comparative Historical Analysis and ‘Ordinary’ Case Studies?

Non-edited accepted preprint of article published in European Political Science 12 (1), 16-1