A Journey from a Corruption Port to a Tax Haven

34 Pages Posted: 27 Oct 2011

See all articles by Shafik Hebous

Shafik Hebous

International Monetary Fund

Vilen Lipatov

Compass Lexecon Brussels

Date Written: October 27, 2011

Abstract

We sketch a model according to which tax havens attract corporate income generated in corrupted countries. In our framework, tax havens have two opposite effects on welfare. First, tax havens’ services have a positive effect on welfare through encouraging investment by firms fearing expropriation and bribes in corrupt countries. Second, by supporting corruption and the concealment of officials’ bribes, tax havens discourage the provision of public goods and hence have also a negative effect on welfare. The net welfare effect depends on the specified preferences and parameters. One source of this ambiguity is that the presence of multinational firms in corrupted countries is positively associated with demanding tax havens’ operations. Using firm-level data, we provide empirical support for this hypothesis.

Keywords: tax havens, tax avoidance, tax evasion, multinational firms, corruption

JEL Classification: F230, H250, H320

Suggested Citation

Hebous, Shafik and Lipatov, Vilen, A Journey from a Corruption Port to a Tax Haven (October 27, 2011). CESifo Working Paper Series No. 3620. Available at SSRN: https://ssrn.com/abstract=1950109

Shafik Hebous (Contact Author)

International Monetary Fund ( email )

Washington, DC
United States

Vilen Lipatov

Compass Lexecon Brussels ( email )

23 Square de Meeus
Bruxelles, 1000
Belgium

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