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A Journey from a Corruption Port to a Tax Haven

  • Shafik Hebous

    ()

    (Goethe University Frankfurt)

  • Vilen Lipatov

    ()

    (Goethe University Frankfurt)

We sketch a model according to which tax havens attract corporate income generated in corrupted countries. We consider the choice of optimal bribes by corrupt o¢ cials and the share of the proceeds of corruption that will be concealed in tax havens. In our framework, tax havens have two opposite e¤ects on welfare. First, tax havens?services have a positive e¤ect on welfare through encouraging investment by ?rms fearing expropriation and bribes in corrupt countries. Second, by supporting corruption and the concealment of o¢ cials?bribes, tax havens discourage the provision of public goods and hence have also a negative e¤ect on welfare. The net welfare e¤ect depends on the speci?ed preferences and parameters. One source of this ambiguity is that the presence of multinational ?rms in corrupted countries is positively associated with demanding tax havens?operations. Using fi?rm-level data, we provide empirical support for this hypothesis.

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Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1204.

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Date of creation: 2012
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Handle: RePEc:btx:wpaper:1204
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