Tax Havens or Safe Havens

52 Pages Posted: 16 Sep 2011

See all articles by Patrice Pieretti

Patrice Pieretti

Universite du Luxembourg; Centre de Recherche en Économie Appliquée (CREA)

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Skerdilajda Zanaj

Catholic University of Louvain - Center for Operations Research and Econometrics (CORE)

Date Written: September 2011

Abstract

Our aim is to explain how a small country can be viable as an international banking center (IBC). We build a model in which mobile investors choose between two banking centers located respectively in a small country and in a large country. These countries compete in two instruments, taxation and institutional infrastructure. It follows that an IBC can be a tax haven, a safe haven, or both. A small country that hosts an IBC is a safe haven when it is able to provide a high level of institutional infrastructure, whereas it chooses to be a tax haven when it cannot be competitive in institutional infrastructure. Even in this last case, an IBC need not be as bad as claimed in the general press because its presence fosters institutional competition across countries, which is ultimately beneficial to all investors.

Keywords: institutional infrastructure competition, international banking centers, portfolio investments, tax competition

JEL Classification: G20, H40, H54

Suggested Citation

Pieretti, Patrice and Thisse, Jacques-François and Zanaj, Skerdilajda, Tax Havens or Safe Havens (September 2011). CEPR Discussion Paper No. DP8570. Available at SSRN: https://ssrn.com/abstract=1928453

Patrice Pieretti (Contact Author)

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Skerdilajda Zanaj

Catholic University of Louvain - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

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