Redefining the great powers: the revisionist model and the emergence of a global regulatory regime for cross-border tax intermediation
Item statusRestricted Access
Embargo end date22/06/2023
The international tax system has been the locus of both international scandals and sweeping regulatory change since the Global Financial Crisis of 2008 (GFC). Starting with two highly publicised international tax scandals involving Switzerland’s UBS and Liechtenstein’s LGT banks, the past decade witnessed a string of further scandals including some of the largest-ever data leaks such as the Panama Papers and Luxembourg Leaks. Simultaneous to the first scandals breaking, governments were responding to the fallout of the GFC, bailing out too-big-to-fail banks with taxpayer money. The confluence of these events resulted in an “evolutionary moment” (Grinberg, 2012) in international tax regulation, where a new regulatory regime, originating in the US Foreign Account Tax Compliance Act (FATCA), forced nearly every non-US financial institution on earth to act as tax reporting intermediaries for the US. Despite early attempts to repeal FATCA, it quickly became the international standard for the cross-border automatic exchange of information for tax purposes. This dissertation asks why the FATCA regime succeeded in becoming a global regime where previous international initiatives failed. Drawing from the international political economy literature, the dissertation seeks to answer this question by comprehensively testing Drezner’s Revisionist Model as an explanatory framework for the emergence of the new regime. The aims of the dissertation are to understand the power dynamics between the ‘great power’ states in implementing the regime, and how the application of the Revisionist Model’s analytic framework can help foster a more nuanced empirical understanding of the architecture of the global financial system and its role in regulatory governance. As such, the dissertation speaks to several related literatures: international regulatory governance and global financial regulation (e.g. Drezner, 2008; Kahler and Lake, 2003; Keohane and Nye, 2012; Quaglia, 2014; Simmons, 2001), international tax coordination literature (e.g. Christians, 2014; Grinberg, 2012; Palan, Murphy, Chavagneux, 2010; Sharman, 2006; Zucman, 2015), as well as contributions to regulatory theory development (e.g. Drezner, 2008; Farrell, Newman, 2021; Mattli and Büthe, 2011; Mattli and Woods, 2009; Quaglia, 2014; Slaughter, 2004). After examining recent theoretical developments, the dissertation provides a detailed explication of the Revisionist Model before comprehensively testing the model through the FATCA regime case study. The analysis finds the Revisionist Model does not fully explain the regime’s emergence due to several falsified elements, including limitations in defining ‘great powers’ as the explanatory variable. The model also correspondingly struggled to predict the standards that describe real-world events. A significant finding here that is contrary to the model’s core hypotheses, is that small states—as compared to the US and EU as ‘great powers’—such as the UK and Switzerland, as well as coalitions of small states, were critical to the overall success of the regime development. Consequently, the dissertation argues that while the theoretical frame of the Revisionist Model is a powerful heuristic, different issue areas will likely require independent variables more closely related to their respective issue areas when defining the relevant great powers. The research also details methodological learnings derived from the model as an analytical tool, presenting several areas of further research in theory development. The Revisionist Model as analytical frameworks is nonetheless a formidable tool for understanding and analysing the case study of the FATCA regime, offering four substantive findings relating to the research question. First, the US was able to translate its market size into a credible coercive mechanism and globally operationalise the threat. Second, to break through the international impasse on FATCA’s implementation, the US formed a bargaining core the EU’s five largest economies, tacitly acknowledging that despite its enormous power asymmetry, it could not solve the problem of global tax evasion, even for itself, on its own. Third, the overwhelming structural commonalities between the US and EU financial regulatory architecture, made implementation less expensive and enabled the US to leverage existing financial crime regulation to build on. Last, the political salience of the offshore tax evasion problem, as a function of major tax scandals and a post-GFC international appetite for regulatory coordination, created unique circumstances for regime development that the US and EU actors were able to leverage, leading to a global regime with both bilateral and multilateral outcomes. The dissertation’s main theoretical contribution is the application of a novel case in global tax regulation to test a major theory of regulatory governance in IPE. The dissertation also contributes to state power modelling and the definition of ‘great powers’, and power dynamics in global financial regulation. Last, the dissertation contributes to the growing IPE issue area of international tax regulation.