Fiscal Paradise: Foreign Tax Havens and American Business

64 Pages Posted: 3 May 2004 Last revised: 14 Jul 2010

See all articles by James R. Hines Jr.

James R. Hines Jr.

University of Michigan; NBER

Eric M. Rice

University of Maryland; National Bureau of Economic Research (NBER)

Date Written: October 1990

Abstract

The offshore tax haven affiliates of American corporations account for more than a quarter of US foreign investment, an nearly a third of the foreign profits of US firms. This paper analyzes the origins of this tax haven activity and its implications for the US and foreign governments. Based on the behavior of US fins in 1982, it appears that American companies report extraordinarily high profit rates on both their real and their financial investments in tax havens. We calculate from this behavior that the tax rate that maximizes tax revenue for a typical haven is around 6%. The revenue implications for the US are more complicated, since tax havens may ultimately enhance the ability of the US government to tax the foreign earnings of American companies.

Suggested Citation

Hines, James Rodger and Rice, Eric M., Fiscal Paradise: Foreign Tax Havens and American Business (October 1990). NBER Working Paper No. w3477. Available at SSRN: https://ssrn.com/abstract=236565

James Rodger Hines (Contact Author)

University of Michigan ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Eric M. Rice

University of Maryland

English Department
College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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