Hide-Seek-Hide? The Effects of Financial Secrecy on Cross-Border Financial Assets

37 Pages Posted: 23 Mar 2022

See all articles by Petr Janský

Petr Janský

Charles University

Tereza Palanská

affiliation not provided to SSRN

Miroslav Palanský

Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Students; Tax Justice Network

Abstract

Excessive financial secrecy facilitates illicit financial flows, which constitute a major developmental challenge for low-income economies and cause significant tax revenue losses to governments around the world. In this paper, we estimate the semi-elasticity of cross-border financial assets to changes in financial secrecy and how it differs for countries at various income levels. We develop a new financial secrecy dataset for the 2011–2020 period, which covers many specific policies in addition to the previously studied automatic information exchange. We then combine it with data on cross-border financial assets and find that investors do indeed react to changes in financial secrecy by relocating their assets to jurisdictions that remain, or have recently become, more financially secretive than other countries. In agreement with our theoretical predictions, we document that this effect is highly non-linear and stronger for portfolio investment than for bank deposits. Overall, we find a much stronger relocation effect for assets originating from lower-income countries.

Keywords: financial secrecy, financial transparency, secrecy jurisdictions, tax havens, offshore financial centers

Suggested Citation

Janský, Petr and Palanská, Tereza and Palanský, Miroslav, Hide-Seek-Hide? The Effects of Financial Secrecy on Cross-Border Financial Assets. Available at SSRN: https://ssrn.com/abstract=4064639 or http://dx.doi.org/10.2139/ssrn.4064639

Petr Janský

Charles University ( email )

Tereza Palanská

affiliation not provided to SSRN ( email )

No Address Available

Miroslav Palanský (Contact Author)

Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies, Students ( email )

Opletalova 26
Praha 1
Czech Republic

Tax Justice Network ( email )

London
United Kingdom

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