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Tax havens or safe havens

  • Patrice Pieretti

    ()

    (CREA, University of Luxembourg)

  • Jacques-François Thisse

    ()

    (CORE, Université catholique de Louvain, CREA, Université du Luxembourg and CEPR)

  • Skerdilajda Zanaj

    ()

    (CREA, University of Luxembourg)

Our aim is to explain how a small country can be viable as an international banking center (IBC). We build a model in which mobile investors choose between two banking centers located respectively in a small country and in a large country. These countries compete in two instruments, taxation and institutional infrastructure. It follows that an IBC can be a tax haven, a safe haven, or both. A small country that hosts an IBC is a safe haven when it is able to provide a high level of institutional infrastructure, whereas it chooses to be a tax haven when it cannot be competitive in institutional infrastructure. Even in this last case, an IBC need not be as bad as claimed in the general press because its presence fosters institutional competition across countries, which is ultimately beneficial to all investors.

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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 11-10.

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Date of creation: 2011
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Handle: RePEc:luc:wpaper:11-10
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  2. Kai Konrad, 2008. "Mobile tax base as a global common," International Tax and Public Finance, Springer, vol. 15(4), pages 395-414, August.
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