International tax competition may result in uneven tax burdens among firms competing in the same market. Disadvantaged firms can respond with market-based strategies (adjustment) or with lobbying for changes in taxation policy (voice). We draw on theories of trade policy, industrial organization and collective action to explain when and why firms respond with adjustment or voice. In this demand-side explanation, corporate responses are accounted for in terms of potential benefits of voice, the collective action capacity of firms and preferences of policy-makers. To show that international tax competition does not necessarily lead to downward convergence of tax burdens, we derive conditions under which disadvantaged firms are likely to demand more government intervention and, by implication, a higher overall tax burden on the industry affected. We assess the plausibility of the explanation with an analysis of political lobbying by US property and casualty insurers aimed at offsetting tax advantages by Bermuda-based insurers operating through subsidiaries in the United States.
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