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Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets

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  • MICHELLE HANLON
  • EDWARD L. MAYDEW
  • JACOB R. THORNOCK

Abstract

type="main"> We empirically investigate one form of illegal investor-level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round-tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker's ( ) economic theory of crime, we identify the tax evasion component by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor-level tax evasion affecting cross-border equity and debt investment.

Suggested Citation

  • Michelle Hanlon & Edward L. Maydew & Jacob R. Thornock, 2015. "Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets," Journal of Finance, American Finance Association, vol. 70(1), pages 257-287, February.
  • Handle: RePEc:bla:jfinan:v:70:y:2015:i:1:p:257-287
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    File URL: http://hdl.handle.net/10.1111/jofi.12120
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    1. repec:sae:pubfin:v:46:y:2018:i:4:p:609-634 is not listed on IDEAS
    2. repec:eee:pubeco:v:176:y:2019:i:c:p:53-78 is not listed on IDEAS
    3. Choy, Siu Kai & Lai, Tat-Kei & Ng, Travis, 2017. "Do tax havens create firm value?," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 198-220.
    4. Casi, Elisa & Spengel, Christoph & Stage, Barbara M. B., 2019. "Cross-border tax evasion after the common reporting standard: Game over?," ZEW Discussion Papers 18-036, ZEW - Leibniz Centre for European Economic Research.
    5. Pham, Tho & Talavera, Oleksandr & Yang, Junhong, 2016. "Multimarket Competition and Profitability: Evidence from Ukrainian banking," MPRA Paper 78763, University Library of Munich, Germany, revised 01 Apr 2017.
    6. repec:kap:jeczfn:v:127:y:2019:i:2:d:10.1007_s00712-018-0636-y is not listed on IDEAS
    7. Braun, Julia & Weichenrieder, Alfons, 2015. "Does Exchange of Information Between Tax Authorities Influence Multinationals' Use of Tax Havens?," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113121, Verein für Socialpolitik / German Economic Association.
    8. James O’Donovan & Hannes F. Wagner & Stefan Zeume, 2018. "The Value of Offshore Secrets: Evidence from the Panama Papers," Working Papers 634, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    9. Niels Johannesen & Patrick Langetieg & Daniel Reck & Max Risch & Joel Slemrod, 2018. "Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts," NBER Working Papers 24366, National Bureau of Economic Research, Inc.
    10. repec:nbr:nberch:14186 is not listed on IDEAS
    11. Menkhoff, Lukas & Miethe, Jakob, 2019. "Tax evasion in new disguise? Examining tax havens' international bank deposits," Journal of Public Economics, Elsevier, vol. 176(C), pages 53-78.
    12. Casi, Elisa & Nenadic, Sara & Orlic, Mark Dinko & Spengel, Christoph, 2018. "A call to action: From evolution to revolution on the common reporting standard," ZEW Discussion Papers 18-035, ZEW - Leibniz Centre for European Economic Research.
    13. Alfons J. Weichenrieder & Fangying Xu, 2019. "Are tax havens good? Implications of the crackdown on secrecy," Journal of Economics, Springer, vol. 127(2), pages 147-160, July.
    14. repec:eee:dyncon:v:87:y:2018:i:c:p:152-172 is not listed on IDEAS
    15. Michelle Hanlon & Jeffrey L. Hoopes & Joel Slemrod, 2019. "Tax Reform Made Me Do It!," Tax Policy and the Economy, University of Chicago Press, vol. 33(1), pages 33-80.
    16. Miethe, Jakob & Menkhoff, Lukas, 2017. "Dirty money coming home: Capital flows into and out of tax havens," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168082, Verein für Socialpolitik / German Economic Association.
    17. Jakob Miethe & Helge Niesytka, 2016. "Tax Evasion and the Impact of International Regulation: A Summary of Empirical Results," DIW Roundup: Politik im Fokus 104, DIW Berlin, German Institute for Economic Research.
    18. Anaya, Pablo & Hachula, Michael & Offermanns, Christian J., 2017. "Spillovers of U.S. unconventional monetary policy to emerging markets: The role of capital flows," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 275-295.
    19. repec:eee:jfinec:v:126:y:2017:i:3:p:516-542 is not listed on IDEAS

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