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Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt MarketsMichelle HanlonMassachusetts Institute of Technology (MIT) - Sloan School of Management Edward L. MaydewUniversity of North Carolina at Chapel Hill - Accounting Area Jacob R. ThornockUniversity of Washington - Michael G. Foster School of Business March 29, 2013 Journal of Finance, Forthcoming Abstract: We empirically investigate one form of illegal investor-level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round-tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker’s (1968) economic theory of crime, we identify the tax evasion component in foreign portfolio investment data by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor-level tax evasion affecting cross-border investment in equity and debt markets.
Number of Pages in PDF File: 46 Keywords: Foreign Portfolio Investment, Tax Havens, Tax Evasion JEL Classification: F21, G15, H26, M41 Accepted Paper SeriesDate posted: August 24, 2011 ; Last revised: April 1, 2013Suggested CitationContact Information
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