Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)

62 Pages Posted: 19 Sep 2017 Last revised: 1 Nov 2019

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

Rebecca Lester

Stanford Graduate School of Business

Kevin Markle

University of Iowa - Henry B. Tippie College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 31, 2019

Abstract

We examine how U.S. individuals respond to regulation intended to reduce offshore tax evasion. The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions to report information to the U.S. government regarding U.S. account holders. We first document a $7.8 billion to $15.3 billion decrease in equity foreign portfolio investment to the United States from tax haven countries after FATCA implementation, consistent with a decrease in “roundtripping” investments attributable to U.S. investors’ offshore tax evasion. When testing total worldwide investment out of financial accounts in tax havens post FATCA, we find a decline of $56.6 billion to $78.0 billion. We next provide evidence of other important consequences of this regulation, including increased expatriations of U.S. citizens and greater investment in alternative assets not subject to FATCA reporting, such as residential real estate and artwork. Our study contributes to both the academic literature and policy analysis on regulation, tax evasion, and crime.

Suggested Citation

De Simone, Lisa and Lester, Rebecca and Markle, Kevin, Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA) (July 31, 2019). Stanford University Graduate School of Business Research Paper No. 17-62, Available at SSRN: https://ssrn.com/abstract=3037426 or http://dx.doi.org/10.2139/ssrn.3037426

Lisa De Simone

University of Texas at Austin ( email )

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Rebecca Lester

Stanford Graduate School of Business ( email )

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HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

Kevin Markle (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

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