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What Problems and Opportunities are Created by Tax Havens?

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  • Dhammika Dharmapala

    (University of Connecticut)

Abstract

Tax havens have attracted increasing attention from policymakers in recent years. This paper provides an overview of a growing body of research that analyzes 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 nonhaven 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 capitalexporting countries have exhibited robust growth, despite substantial FDI flows to tax havens.

Suggested Citation

  • Dhammika Dharmapala, 2008. "What Problems and Opportunities are Created by Tax Havens?," Working Papers 0820, Oxford University Centre for Business Taxation.
  • Handle: RePEc:btx:wpaper:0820
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