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A Journey from a Corruption Port to a Tax Haven

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  • Shafik Hebous

    ()
    (Goethe University Frankfurt)

  • Vilen Lipatov

    ()
    (Goethe University Frankfurt)

Abstract

We sketch a model according to which tax havens attract corporate income generated in corrupted countries. We consider the choice of optimal bribes by corrupt o¢ cials and the share of the proceeds of corruption that will be concealed in tax havens. In our framework, tax havens have two opposite e¤ects on welfare. First, tax havens?services have a positive e¤ect on welfare through encouraging investment by ?rms fearing expropriation and bribes in corrupt countries. Second, by supporting corruption and the concealment of o¢ cials?bribes, tax havens discourage the provision of public goods and hence have also a negative e¤ect on welfare. The net welfare e¤ect depends on the speci?ed preferences and parameters. One source of this ambiguity is that the presence of multinational ?rms in corrupted countries is positively associated with demanding tax havens?operations. Using fi?rm-level data, we provide empirical support for this hypothesis.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1204.

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Date of creation: 2012
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Handle: RePEc:btx:wpaper:1204

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Keywords: Tax Havens; Tax Avoidance; Tax Evasion; Multinational Firms; Corruption;

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References

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  1. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  2. 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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  4. Dhammika Dharmapala, 2008. "What problems and opportunities are created by tax havens?," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 661-679, winter.
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  13. Gumpert, Anna & Hines Jr., James R. & Schnitzer, Monika, 2012. "The use of tax havens in exemption regimes," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 381, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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  21. Shafik Hebous, 2011. "Money at the Docks of Tax Havens: A Guide," CESifo Working Paper Series 3587, CESifo Group Munich.
  22. Jakob Svensson, 2005. "Eight Questions about Corruption," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 19-42, Summer.
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Cited by:
  1. Shafik Hebous, 2011. "Money at the Docks of Tax Havens: A Guide," CESifo Working Paper Series 3587, CESifo Group Munich.

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