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Macroeconomic effects of banking secrecy when tax evasion is endogenous

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  • Frode Brevik

    ()

  • Manfred Gärtner

    ()

Abstract

We analyze a multi-country model in which a small group of countries adopts banking secrecy (BS) laws and a withholding tax. The other group doesn't. BS countries benefit in all relevant macroeconomic variables, including taxes and the provision of public goods. In non- BS countries most of the same variables deteriorate - when tax evasion is exogenous or its tax elasticity is moderate. When this elasticity is high, BS may drive these countries' tax rates down also, and income, consumption and wealth may rise. However, public-goods provision always deteriorates and welfare falls. We also argue that this case does not appear to be relevant empirically.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2006/DP10_ga.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2006 with number 2006-10.

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Length: 26 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:usg:dp2006:2006-10

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Keywords: Banking secrecy; tax evasion; withholding tax; welfare effects;

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  1. Philippe Bacchetta & Maria Paz Espinosa, 1993. "Information Sharing and Tax Competition Among Governments," CEPR Financial Markets Paper 0028, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  2. Huizinga, H.P. & Nicodeme, G., 2004. "Are international deposits tax-driven?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-142606, Tilburg University.
  3. Wolfgang Eggert & Martin Kolmar, 2004. "The Taxation of Financial Capital under Asymmetric Information and the Tax-competition Paradox," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 83-106, 03.
  4. Ellen R. McGrattan & Edward C. Prescott, 2003. "Average debt and equity returns: puzzling?," Staff Report 313, Federal Reserve Bank of Minneapolis.
  5. Kollintzas, T. & Philippopoulos, A. & Vasillatos, V., 1999. "Is Tax Policy Coordination Necessary?," Athens University of Economics and Business 110, Athens University of Economics and Business, Department of International and European Economic Studies.
  6. Frode Brevik & Manfred Gärtner, 2005. "Welfare and Distribution Effects of Bank Secrecy Laws," University of St. Gallen Department of Economics working paper series 2005 2005-07, Department of Economics, University of St. Gallen.
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