A Real Option Approach to Responsible Tax Behavior

Abstract

Recent investigative journalism such as the Paradise Papers suggests that aggressive tax planning is still present today. The initiatives of the OECD and of the EU authorities against aggressive tax planning in general, and the BEPS initiative in particular, still lack effectiveness. We analyze the fight against aggressive corporate tax planning from a Real Option Theory perspective, in order to find an explanation for the difficult shift of companies’ aggressive tax planning strategies to more responsible tax behavior. Moreover, we suggest additional public policy interventions against aggressive tax planning based on Real Option Theory insights.