Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets
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
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
Date posted: August 24, 2011 ; Last revised: April 1, 2013
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