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What problems and opportunities are created by tax havens?

  • Dhammika Dharmapala

Tax havens have attracted increasing attention from policy-makers in recent years. This paper provides an overview of a growing body of research that analyses the consequences and determinants of the existence of tax-haven countries. For instance, recent evidence suggests that tax havens tend to have stronger governance institutions than comparable non-haven countries. Most importantly, tax havens provide opportunities for tax planning by multinational corporations. It is often argued that tax havens erode the tax base of high-tax countries by attracting such corporate activity. However, while tax havens host a disproportionate fraction of the world's foreign direct investment (FDI), their existence need not make high-tax countries worse off. It is possible that, under certain conditions, the existence of tax havens can enhance efficiency and even mitigate tax competition. Indeed, corporate tax revenues in major capital-exporting countries have exhibited robust growth, despite substantial FDI flows to tax havens. Copyright 2008, Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 24 (2008)
Issue (Month): 4 (winter)
Pages: 661-679

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Handle: RePEc:oup:oxford:v:24:y:2008:i:4:p:661-679
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