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Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)

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  • LISA DE SIMONE
  • REBECCA LESTER
  • KEVIN MARKLE

Abstract

We examine how U.S. individuals respond to regulation intended to reduce offshore tax evasion. The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions to report information to the U.S. government regarding U.S. account holders. We first document an average $7.8 billion to $15.3 billion decrease in equity foreign portfolio investment to the United States from tax‐haven countries after FATCA implementation, consistent with a decrease in “round‐tripping” investments attributable to U.S. investors’ offshore tax evasion. When testing total worldwide investment out of financial accounts in tax havens post‐FATCA, we find an average decline of $56.6 billion to $78.0 billion. We next provide evidence of other important consequences of this regulation, including increased expatriations of U.S. citizens and greater investment in alternative assets not subject to FATCA reporting, such as residential real estate and artwork. Our study contributes to both the academic literature and policy analysis on regulation, tax evasion, and crime.

Suggested Citation

  • Lisa De Simone & Rebecca Lester & Kevin Markle, 2020. "Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)," Journal of Accounting Research, Wiley Blackwell, vol. 58(1), pages 105-153, March.
  • Handle: RePEc:bla:joares:v:58:y:2020:i:1:p:105-153
    DOI: 10.1111/1475-679X.12293
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    File URL: https://doi.org/10.1111/1475-679X.12293
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    Cited by:

    1. Casi, Elisa & Spengel, Christoph & Stage, Barbara M.B., 2020. "Cross-border tax evasion after the common reporting standard: Game over?," Journal of Public Economics, Elsevier, vol. 190(C).
    2. Preetika Joshi & Edmund Outslay & Anh Persson & Terry Shevlin & Aruhn Venkat, 2020. "Does Public Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from the European Banking Industry," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2357-2397, December.

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