Tax havens or safe havens
AbstractOur aim is to explain how a small country can be viable as an international banking center (IBC). We build a model in which mobile investors choose between two banking centers located respectively in a small country and in a large country. These countries compete in two instruments, taxation and institutional infrastructure. It follows that an IBC can be a tax haven, a safe haven, or both. A small country that hosts an IBC is a safe haven when it is able to provide a high level of institutional infrastructure, whereas it chooses to be a tax haven when it cannot be competitive in institutional infrastructure. Even in this last case, an IBC need not be as bad as claimed in the general press because its presence fosters institutional competition across countries, which is ultimately beneficial to all investors.
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Date of creation: Sep 2011
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Find related papers by JEL classification:
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- H40 - Public Economics - - Publicly Provided Goods - - - General
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-09-22 (Accounting & Auditing)
- NEP-ALL-2011-09-22 (All new papers)
- NEP-IFN-2011-09-22 (International Finance)
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