Bootstraps and Poverty Traps : Tax Treaties as Novel Tools for Development Finance

Current shortfalls in financing required for full achievement of the Millennium Development Goals have led to calls for consideration of novel means of development finance. This Article describes such a novel means of development finance based on a radical rethinking of the typical allocation of tax entitlements in bilateral income tax treaties. The central proposal is for a developing country to surrender, by tax treaty, a portion of its taxing authority in exchange for an upfront capital transfer from the developed country. The developed country would then recoup some portion of the upfront capital transfer through the exercise of the expanded authority secured under the treaty. The Article describes a number of ways in which the proposal represents an advance over existing forms of development finance, including for example, effects on administrative burdens, tax competition, and risk shifting. The Article also addresses a number of potential criticisms of the proposal, relating especially to issues of sovereignty and enforceability