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Honor among tax havens

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  • Bucovetsky, S.

Abstract

A simple, partial equilibrium model of the supply of offshore tax havens is analyzed, when multinationals are capable of sheltering some of their worldwide income. This model provides a few contrasting predictions to those in “Tax Competition with Parasitic Tax Havens” by Slemrod and Wilson. Slemrod and Wilson model tax sheltering as a production process which uses up scarce resources in the tax haven providing it. Here, multinational firms can transfer some of their income costlessly to an offshore tax haven, which charges a fee for this privilege. (So there are no real resource costs to tax sheltering activity in this model.) But the tax havens must commit credibly to honor their implicit promise to keep tax rates low. The cost of sheltering income, the number of tax havens, and the extent to which multinational firms shelter income there are all determined by this credibility requirement. Although the tax rates in the rest of the world (the larger countries which are not tax havens) will affect the number of tax havens, they will have little or no effect on the amount of income which multinationals choose to shelter.

Suggested Citation

  • Bucovetsky, S., 2014. "Honor among tax havens," Journal of Public Economics, Elsevier, vol. 110(C), pages 74-81.
    • Handle: RePEc:eee:pubeco:v:110:y:2014:i:c:p:74-81
    DOI: 10.1016/j.jpubeco.2013.12.007
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    References listed on IDEAS

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    1. Thisse, Jacques-François & Pieretti, Patrice & Zanaj, Skerdilajda, 2011. "Tax havens or safe havens," CEPR Discussion Papers 8570, C.E.P.R. Discussion Papers.
    2. Bucovetsky, Sam & Haufler, Andreas, 2008. "Tax competition when firms choose their organizational form: Should tax loopholes for multinationals be closed," Journal of International Economics, Elsevier, vol. 74(1), pages 188-201, January.
    3. Janeba, Eckhard & Peters, Wolfgang, 1999. "Tax Evasion, Tax Competition and the Gains from Nondiscrimination: The Case of Interest Taxation in Europe," Economic Journal, Royal Economic Society, vol. 109(452), pages 93-101, January.
    4. Janeba, Eckhard & Smart, Michael, 2003. "Is Targeted Tax Competition Less Harmful Than Its Remedies?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(3), pages 259-280, May.
    5. Hong, Qing & Smart, Michael, 2010. "In praise of tax havens: International tax planning and foreign direct investment," European Economic Review, Elsevier, vol. 54(1), pages 82-95, January.
    6. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June.
    7. Slemrod, Joel & Wilson, John D., 2009. "Tax competition with parasitic tax havens," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1261-1270, December.
    8. James R. Hines Jr., 2005. "Do Tax Havens Flourish?," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 65-100, National Bureau of Economic Research, Inc.
    9. Dharmapala, Dhammika & Hines Jr., James R., 2009. "Which countries become tax havens?," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1058-1068, October.
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    Cited by:

    1. Konrad, Kai A. & Stolper, Tim B.M., 2016. "Coordination and the fight against tax havens," Journal of International Economics, Elsevier, vol. 103(C), pages 96-107.
    2. Johannesen, Niels, 2022. "The global minimum tax," Journal of Public Economics, Elsevier, vol. 212(C).
    3. Pieretti, Patrice & Pulina, Giuseppe, 2020. "Does eliminating international profit shifting increase tax revenue in high-tax countries?," Economic Modelling, Elsevier, vol. 93(C), pages 717-727.
    4. Giuseppe Pulina & Skerdilajda Zanaj, 2022. "Tax competition and phantom FDI," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1342-1363, December.
    5. Rota-Graziosi, Grégoire, 2019. "The supermodularity of the tax competition game," Journal of Mathematical Economics, Elsevier, vol. 83(C), pages 25-35.
    6. Patrice Pieretti & Giuseppe Pulina, 2015. "Tax havens under international pressure: How do they react?," DEM Discussion Paper Series 15-03, Department of Economics at the University of Luxembourg.

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    More about this item

    Keywords

    Tax havens; Credibility; Tax competition;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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