Endogenous Tax Policy and Economic Growth of Tax Havens

22 Pages Posted: 23 Jul 2009 Last revised: 23 Apr 2010

See all articles by Luisa R. Blanco

Luisa R. Blanco

Pepperdine University School of Public Policy

Cynthia L. Rogers

affiliation not provided to SSRN

Date Written: September 20, 2008

Abstract

That tax haven policies contribute to favorable economic growth in tax haven countries is widely accepted in international policy dialogues. There is, however, minimal empirical evidence to substantiate this assertion. Empirical investigations are hampered by the likely endogeneity of tax haven policies to underlying growth outcomes. Using a sample of 155 countries from 1982 to 2003, we find that the standard tax haven variable is endogenous to the error term in a typical growth regression. We offer land area measures as valid instruments for tax haven status. Results based on two-stage least squares estimation with heteroskedastic standard errors and controls for initial conditions provide empirical justification for the commonly held belief that tax havens flourish compared with non-tax haven countries. Understanding the role of endogeneity is salient for a variety of related research, including the current dialogue concerning the impact of tax haven policies on non-tax haven countries.

Keywords: Tax Haven, Endogeneity

JEL Classification: H25, H87

Suggested Citation

Blanco, Luisa R. and Rogers Amon, Cynthia L., Endogenous Tax Policy and Economic Growth of Tax Havens (September 20, 2008). Available at SSRN: https://ssrn.com/abstract=1432580 or http://dx.doi.org/10.2139/ssrn.1432580

Luisa R. Blanco (Contact Author)

Pepperdine University School of Public Policy ( email )

24255 Pacific Coast Highway
Malibu, CA 90263
United States

Cynthia L. Rogers Amon

affiliation not provided to SSRN ( email )

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