Tax treaties are not always effective in reducing tax competition between countries. Instead, countries engage in bilateral tax competition by lowering tax rates for specific types of income from certain countries. The study analyzed 3,000 tax treaties signed between 1930 and 2012 and found that when one country reduces tax rates for a specific type of income, neighboring countries tend to follow suit. This bilateral tax competition is strongest for interest and royalties, with an average elasticity between 0.19 and 0.36 for OECD member countries and up to 0.64 for tax havens.