What Problems and Opportunities are Created by Tax Havens?

29 Pages Posted: 6 Oct 2008

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2008

Abstract

Tax havens have attracted increasing attention from policymakers in recent years. This paper provides an overview of a growing body of research that analyzes the consequences and determinants of the existence of tax haven countries. For instance, recent evidence suggests that tax havens tend to have stronger governance institutions than comparable non haven countries. Most importantly, tax havens provide opportunities for tax planning by multinational corporations. It is often argued that tax havens erode the tax base of high-tax countries by attracting such corporate activity. However, while tax havens host a disproportionate fraction of the world's foreign direct investment (FDI), their existence need not make high-tax countries worse off. It is possible that, under certain conditions, the existence of tax havens can enhance efficiency and even mitigate tax competition. Indeed, corporate tax revenues in major capital-exporting countries have exhibited robust growth, despite substantial FDI flows to tax havens.

Keywords: Tax havens, tax competition, tax avoidance, foreign direct investment

JEL Classification: H87, H25, K10

Suggested Citation

Dharmapala, Dhammika, What Problems and Opportunities are Created by Tax Havens? (October 5, 2008). Available at SSRN: https://ssrn.com/abstract=1279146 or http://dx.doi.org/10.2139/ssrn.1279146

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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