Abstract

http://ssrn.com/abstract=1915429
 
 

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Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets


Michelle Hanlon


Massachusetts Institute of Technology (MIT) - Sloan School of Management

Edward L. Maydew


University of North Carolina at Chapel Hill

Jacob R. Thornock


University 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

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Date posted: August 24, 2011 ; Last revised: April 1, 2013

Suggested Citation

Hanlon, Michelle and Maydew, Edward L. and Thornock, Jacob R., Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets (March 29, 2013). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1915429 or http://dx.doi.org/10.2139/ssrn.1915429

Contact Information

Michelle Hanlon
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States
617-253-9849 (Phone)
Edward L. Maydew (Contact Author)
University of North Carolina at Chapel Hill ( email )
McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)
HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew

Jacob Thornock
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
HOME PAGE: http://faculty.washington.edu/thornocj/index.shtml
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