TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, February 17, 2015

Rosenzweig: Does Punishment Work (At Least In International Tax)?

Jotwell Adam Rosenzweig (Washington University), Does Punishment Work (At Least In International Tax)? (Jotwell) (reviewing Niels Johannesen (University of Copenhagen) & Gabriel Zucman (UC-Berkeley & London School of Economics), The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown, 2014 Am. Econ. J. Econ. Policy 65):

The best way to describe the project is to quote the abstract:

During the financial crisis, G20 countries compelled tax havens to sign bilateral treaties providing for exchange of bank information. Policymakers have celebrated this global initiative as the end of bank secrecy. Exploiting a unique panel dataset, our study is the first attempt to assess how the treaties affected bank deposits in tax havens. Rather than repatriating funds, our results suggest that tax evaders shifted deposits to havens not covered by a treaty with their home country. The crackdown thus caused a relocation of deposits at the benefit of the least compliant havens.

This paper provides an extremely important and timely contribution to the international tax literature. Anecdotal evidence about the effectiveness of punishment has been mixed to date, and there has been little empirical data directly on the question. Further, the question taps into a larger debate over the underlying, root causes of tax competition more generally. By providing empirical data directly on this question, Johannesen and Zucman move the debate forward in an extremely valuable way.

Although Johannesen and Zucman support the call for a multilateral treaty, their results could also support side payments, or a multinational tax institution, or a number of other legal structures. Ultimately, then, I believe this paper highlights the need for increased dialogue between public finance and legal experts in this area, especially given the unique opportunity to revisit all of these issues through BEPS. Economists are good at measuring and quantifying issues, and providing disciplinary rigor to analyzing difficult questions. Lawyers know how to implement policy, how to build institutions, and how to anticipate taxpayer responses. Both are necessary to build a real-world regime, and each can learn from the other. Hopefully, Johannesen and Zucman, as part of a larger project, can help further this process.

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