Tax Havens and Reputational Costs: Evidence from EU Blacklisting

57 Pages Posted: 7 Jul 2022

See all articles by Adrienne DePaul

Adrienne DePaul

University of Connecticut - Department of Accounting

Frank Murphy

University of Connecticut - Department of Accounting

Mary Vernon

University of Illinois at Chicago - Department of Accounting

Date Written: June 27, 2022

Abstract

In response to growing concern over escalating tax avoidance, the European Commission (EC) published a blacklist and greylist of tax haven jurisdictions (EU tax haven list). The EU tax haven list is intended to pressure countries to comply with existing international tax standards by affecting the country’s reputation. Critics note that the EU tax haven list excludes well-known EU tax havens, heavily focuses on developing nations, and is too-frequently updated, suggesting inadequacies and politics in the listing process that potentially limit the desired effects. We document the determinants of being included on the EU tax haven list and find that countries with less economic bargaining power with the EU and more financial secrecy have a greater likelihood of being on the EU tax haven list. Our analysis suggests that certain EU tax havens have similar characteristics to non-EU countries included in the EU listing. Furthermore, we examine country reputational costs for listed countries by evaluating the flow of investment to tax haven affiliates (FDI) and tourism for listed tax haven jurisdictions after the list issuance. We fail to find evidence that listed countries suffer a reduction in FDI. However, we find evidence that listed countries suffer a reduction in tourism, an often-major source of national revenue for common tax haven countries. Overall, our results suggest some consumer-related reputational effects to the EU tax haven list.

Keywords: Tax havens, reputational costs, foreign direct investment

JEL Classification: F4, G38, H20

Suggested Citation

DePaul, Adrienne and Murphy, Frank and Vernon, Mary, Tax Havens and Reputational Costs: Evidence from EU Blacklisting (June 27, 2022). Available at SSRN: https://ssrn.com/abstract=4147778 or http://dx.doi.org/10.2139/ssrn.4147778

Adrienne DePaul

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Frank Murphy (Contact Author)

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

Mary Vernon

University of Illinois at Chicago - Department of Accounting ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States

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