Paul L. Caron

Wednesday, July 4, 2012

The Role of Tax Havens in the Global Economy

Tax AnalystsRobert T. Kudrle (University of Minnesota, Hubert H. Humphrey School of Public Affairs), Whose ‘Treasure Islands’? The Role of Tax Havens in the Global Economy, 67 Tax Notes Int'l 69 (July 2, 2012):

Two recent works with the same title suggest radically different views of the role of tax havens in the global economy. In late 2010, James R. Hines Jr. [24 J. Econ. 103] (2010) made the case for a largely beneficial role. According to Hines, the tax havens improve markets: they facilitate direct investment by improving the attraction of high-corporate-tax states for real investment, and they may shore up rather than degrade corporate tax collections by high-corporate-income states such as the U.S. They also seem to improve the competitiveness of national financial institutions and hence facilitate portfolio capital provision in both rich and poor countries. A book by Nicholas Shaxson (2011), which appeared shortly after Hines's article, presents an utterly different assessment. In Shaxson's account, tax havens permit the superrich in high-income countries to evade their tax responsibilities, place a huge additional burden on rich-country taxpayers by allowing vast corporate profits to go untaxed, and facilitate the drain of capital from poor countries.

The works differ in four main areas:

  • the jurisdictions considered
  • the practices examined
  • the evidence employed
  • the implications for policy

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See also New York Times:  Tax Havens and Treasure Hunts, by Nancy Folbre (University of Massachusetts-Amherst).

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Expect another tome on this topic from the Task Force on Illicit Financial Flows, Poverty and Human Rights, recently convened by the Human Rights Institute of the International Bar Association. If you read the biographies of the members, you will know what the general conclusion of their report will be.

Posted by: TexeEcon | Jul 5, 2012 8:23:48 AM