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Do Tax Havens Flourish?

In: Tax Policy and the Economy, Volume 19

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  • James R. Hines Jr.

Abstract

Tax haven countries offer foreign investors low tax rates and other tax features designed to attract investment and thereby stimulate economic activity. Major tax havens have less than one percent of the world's population (outside the United States), and 2.3 percent of world GDP, but host 5.7 percent of the foreign employment and 8.4 percent of foreign property, plant and equipment of American firms. Per capita real GDP in tax haven countries grew at an average annual rate of 3.3 percent between 1982 and 1999, which compares favorably to the world average of 1.4 percent. Tax haven governments appear to be adequately funded, with an average 25 percent ratio of government to GDP that exceeds the 20 percent ratio for the world as a whole, though the small populations and relative affluence of these countries would normally be associated with even larger governments. Whether the economic prosperity of tax haven countries comes at the expense of higher tax countries is unclear, though recent research suggests that tax haven activity stimulates investment in nearby high-tax countries.

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This chapter was published in:

  • James M. Poterba, 2005. "Tax Policy and the Economy, Volume 19," NBER Books, National Bureau of Economic Research, Inc, number pote05-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0165.

    Handle: RePEc:nbr:nberch:0165

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Hines, James R, Jr, 1996. "Altered States: Taxes and the Location of Foreign Direct Investment in America," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1076-94, December.
    2. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, National Bureau of Economic Research, Inc, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc.
    3. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 149-82, February.
    4. James R. Hines Jr., 1992. "Credit and Deferral as International Investment Incentives," NBER Working Papers 4191, National Bureau of Economic Research, Inc.
    5. Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, American Economic Association, vol. 76(5), pages 1086-1102, December.
    6. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2001. "Repatriation Taxes and Dividend Distortions," NBER Working Papers 8507, National Bureau of Economic Research, Inc.
    7. Rosanne Altshuler & Harry Grubert & T. Scott Newlon, 1998. "Has U.S. Investment Abroad Become More Sensitive to Tax Rates?," NBER Working Papers 6383, National Bureau of Economic Research, Inc.
    8. Rosanne Altshuler & Harry Grubert, 2004. "Taxpayer Responses to Competitive Tax Policies and Tax Policy Responses to Competitive Taxpayers: Recent Evidence," Departmental Working Papers, Rutgers University, Department of Economics 200406, Rutgers University, Department of Economics.
    9. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc.
    10. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
    11. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 59(6), pages 2451-2487, December.
    12. Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, Elsevier, vol. 54(2), pages 243-266, June.
    13. Rosanne Altshuler & T. Scott Newlon & William C. Randolph, 1994. "Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals," NBER Working Papers 4667, National Bureau of Economic Research, Inc.
    14. Martin Feldstein & James R. Hines Jr. & R. Glenn Hubbard, 1995. "The Effects of Taxation on Multinational Corporations," NBER Books, National Bureau of Economic Research, Inc, number feld95-2, July.
    15. Joel B. Slemrod, 1990. "Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison," NBER Chapters, National Bureau of Economic Research, Inc, in: Taxation in the Global Economy, pages 79-122 National Bureau of Economic Research, Inc.
    16. James R. Hines, Jr., 1995. "Taxes, Technology Transfer, and the R&D Activities of Multinational Firms," NBER Chapters, National Bureau of Economic Research, Inc, in: The Effects of Taxation on Multinational Corporations, pages 225-252 National Bureau of Economic Research, Inc.
    17. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.
    18. James R. Hines, Jr. & R. Glenn Hubbard, 1990. "Coming Home to America: Dividend Repatriations by U.S. Multinationals," NBER Working Papers 2931, National Bureau of Economic Research, Inc.
    19. Young, Kan H., 1988. "The Effects of Taxes and Rates of Return on Foreign Direct Investment in the United States," National Tax Journal, National Tax Association, vol. 41(1), pages 109-21, March.
    20. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, July.
    21. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "Economic Effects of Regional Tax Havens," NBER Working Papers 10806, National Bureau of Economic Research, Inc.
    22. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, Elsevier, vol. 88(6), pages 1065-1091, June.
    23. Swenson, Deborah L., 2001. "Tax Reforms and Evidence of Transfer Pricing," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 7-26, March.
    24. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
    25. Patrick Honohan & Brendan Walsh, 2002. "Catching Up with the Leaders: The Irish Hare," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 1-78.
    26. Slemrod, Joel, 2004. "Are corporate tax rates, or countries, converging?," Journal of Public Economics, Elsevier, Elsevier, vol. 88(6), pages 1169-1186, June.
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    Cited by:
    1. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and Domestic Economic Activity," NBER Working Papers 11717, National Bureau of Economic Research, Inc.
    2. Robert E. Lipsey, 2008. "Measuring the Location of Production in a World of Intangible Productive Assets, FDI, and Intrafirm Trade," NBER Working Papers 14121, National Bureau of Economic Research, Inc.
    3. Joel Slemrod & John D. Wilson, 2006. "Tax Competition With Parasitic Tax Havens," NBER Working Papers 12225, National Bureau of Economic Research, Inc.
    4. Robert E. Lipsey, 2006. "Measuring International Trade in Services," NBER Working Papers 12271, National Bureau of Economic Research, Inc.
    5. Keller, Sara & Schanz, Deborah, 2013. "Tax attractiveness and the location of German-controlled subsidiaries," arqus Discussion Papers in Quantitative Tax Research 142, arqus - Arbeitskreis Quantitative Steuerlehre.
    6. Norman Gemmel & Richard Kneller & Danny McGowan & Ismael Sanz, 2013. "Corporate Taxation and Productivity Catch-Up: Evidence from European Firms," Working Papers 13001, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    7. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 50(2-3), pages 127-178, December.
    8. Dhammika Dharmapala & James R. Hines Jr., 2006. "Which Countries Become Tax Havens?," NBER Working Papers 12802, National Bureau of Economic Research, Inc.
    9. Butkiewicz, James L. & Gordon, Leo-Rey C., 2013. "The Economic Growth Effect of Offshore Banking in Host Territories: Evidence from the Caribbean," World Development, Elsevier, Elsevier, vol. 44(C), pages 165-179.
    10. Robert E. Lipsey, 2007. "Defining and Measuring the Location of FDI Output," NBER Working Papers 12996, National Bureau of Economic Research, Inc.
    11. Michael Brei, 2013. "Offshore financial centers in the Caribbean: An overview," EconomiX Working Papers 2013-40, University of Paris West - Nanterre la Défense, EconomiX.
    12. Chu, Hsun & Lai, Ching-Chong & Cheng, Chu-Chuan, 2013. "Tax Havens, Growth, and Welfare," MPRA Paper 52878, University Library of Munich, Germany, revised Sep 2013.
    13. Schwarz, Peter, 2011. "Money launderers and tax havens: Two sides of the same coin?," International Review of Law and Economics, Elsevier, Elsevier, vol. 31(1), pages 37-47, March.
    14. James Alm & Mir Ahmad Khan, 2008. "Assessing Enterprise Taxation and the Investment Climate in Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0810, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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