Which Countries Become Tax Havens?

No 12802, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the factors influencing whether countries become tax havens. Roughly 15 percent of countries are tax havens; as has been widely observed, these countries tend to be small and affluent. This paper documents another robust empirical regularity: better-governed countries are much more likely than others to become tax havens. Using a variety of empirical approaches, and controlling for other relevant factors, governance quality has a statistically significant and quantitatively large impact on the probability of being a tax haven. For a typical country with a population under one million, the likelihood of a becoming a tax haven rises from 24 percent to 63 percent as governance quality improves from the level of Brazil to that of Portugal. The effect of governance on tax haven status persists when the origin of a country's legal system is used as an instrument for its quality of its governance. Low tax rates offer much more powerful inducements to foreign investment in well-governed countries than elsewhere, which may explain why poorly governed countries do not generally attempt to become tax havens -- and suggests that the range of sensible tax policy options is constrained by the quality of governance.

JEL-codes: H25 H87 K10 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-law and nep-pbe
Note: IFM ITI PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

Published as Dharmapala, Dhammika & Hines Jr., James R., 2009. "Which countries become tax havens?," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1058-1068, October.

Downloads: (external link)
http://www.nber.org/papers/w12802.pdf (application/pdf)

Related works:
Journal Article: Which countries become tax havens? (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:12802

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w12802

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().