Contrary to conventional wisdom, recent research has shown that capital flight does not constitute a structural constraint to international tax co-operation. Instead, great powers - defined by the size of their financial markets - are capable of imposing their preferred co-operative arrangement on other countries, using credible threats of market closure to enforce compliance. Hence, the question arises what motivates great powers to throw their weight behind initiatives for international tax co-operation? I argue that great power tax authorities act decisively at the international level when they are no longer able to balance the competing goals of financing the state and preserving the competitiveness of domestic (financial) industries through unilateral matters. That is, when great powers face budget and political constraints that prevent them from (1) further cutting taxes on capital, and (2) shifting the tax burden towards workers and/or consumers, they will impose an international tax agreement on other countries that preserves or even enhances the competitiveness of their domestic industries at the expense of their foreign competitors. I will test my argument by comparing two instances of international bargaining over taxation: the automatic exchange of information pushed forward by the United States at bilateral and OECD level, and the financial transactions tax initially championed by France and Germany at EU level. Framed this way, my contribution would speak to broader discussions over tax policy-making at the domestic level and inform debates on international financial regulation.
