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Paradise Lost: The Cost of Removing Tax and Trade Provisions from the Compact of Free Association

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  • Samuel Rueckert Brazys

Abstract

Upon implementing the Compact of Free Association between the United States and the Federated States of Micronesia, the US Congress unilaterally stripped tax and trade provisions that would have encouraged investment in the Federated States of Micronesia. I quantify what was lost to the Federated States of Micronesia by arguing that the provisions would have made the Federated States of Micronesia an explicitly sanctioned tax haven through empirical estimates of the impact of tax havens on growth and a comparison of performance of similarly situated entities, the American Samoa and Commonwealth of the Northern Mariana Islands, which did have preferential access to the US market. The estimates suggest that the Federated States of Micronesia lost from $700 million to over $1 billion in gross domestic product from 1986 to 2001.

Suggested Citation

  • Samuel Rueckert Brazys, 2014. "Paradise Lost: The Cost of Removing Tax and Trade Provisions from the Compact of Free Association," Asia and the Pacific Policy Studies 201402, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:appswp:201402
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    File URL: http://onlinelibrary.wiley.com/doi/10.1002/app5.2/pdf
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    Cited by:

    1. Samuel Brazys & Krishna Chaitanya Vadlamannati, 2021. "Aid curse with Chinese characteristics? Chinese development flows and economic reforms," Public Choice, Springer, vol. 188(3), pages 407-430, September.

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    Keywords

    tax haven; trade; aid; development; FDI;
    All these keywords.

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