Working Paper: CEPR ID: DP10519
Authors: Kai A. Konrad; Tim Stolper
Abstract: The success or failure of the fight against tax havens is the outcome of a coordination game between a tax haven and its potential investors. Key determinants are the costly international pressure and the haven country's revenue pool. The latter is determined endogenously by the decisions of many individual investors. Our findings explain why some havens attract large sources of international investment and earn large revenues while other countries do not, and why their profits are not competed away. We identify a trade-off between fighting tax havens and high tax rates or, similarly, small fines for disclosed tax evasion.
Keywords: initiatives against harmful tax practices; tax evasion; tax havens
JEL Codes: G20; H26; H87
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| amount of capital (a) (G31) | haven country’s decision to provide concealment services (h=1) (D79) |
| insufficient capital inflow (a < s) (F32) | haven country’s decision to adopt an information exchange regime (h=0) (F55) |
| level of international pressure (p) (F53) | likelihood of adopting an information exchange regime (h=0) (F55) |
| level of international pressure (p) (F53) | attractiveness of the tax haven business model (H26) |
| investor expectations about the haven country’s future behavior (F31) | movement of capital to the haven (F21) |
| amount of capital (a) (G31) | investor expectations about the haven country’s future behavior (F31) |