Economic Effects of Regional Tax Havens"How does the opportunity to use tax havens influence economic activity in nearby non-haven countries? Analysis of affiliate-level data indicates that American multinational firms use tax haven affiliates to reallocate taxable income away from high-tax jurisdictions and to defer home country taxes on foreign income. Ownership of tax haven affiliates is associated with reduced tax payments by nearby non-haven affiliates, the size of the effect being equivalent to a 20.8 percent tax rate reduction. The evidence also indicates that use of tax havens indirectly stimulates the growth of operations in non-haven countries in the same region. A one percent greater likelihood of establishing a tax haven affiliate is associated with 0.5 to 0.7 percent greater sales and investment growth by non-haven affiliates, implying a complementary relationship between haven and non-haven activity. The ability to avoid taxes by using tax haven affiliates therefore appears to facilitate economic activity in non-haven countries within regions"--NBER website |
Common terms and phrases
Affiliate in Haven analysis Average Non-Haven Tax benchmark survey Big 7 countries Big 7 Havens coefficient in column Country Tax Rate dependent variable Desai Dot Havens dummy variable set economic activity fixed effects foreign affiliates foreign direct investment foreign investment foreign tax rates GDP growth rates Growth in Non-Havens haven affiliates located haven and non-haven high-tax countries instrumental variables Jeremy Greenwood Log of Non-Haven Log of Parent logit low-tax jurisdictions median tax rate NBER non-haven activity non-haven countries Non-Haven Sales Non-Haven Tax Rate non-tax haven OECD parent companies Parent R&D Parent Sales parents in non-havens PPE Growth R&D to Sales ratio of affiliate reallocate taxable income regional tax havens regressions reported related parties abroad reported in columns Sales to Related Share of Affiliate Soldiers Field tax avoidance tax competition tax harmonization tax haven affiliates tax haven countries tax haven operations tax payments taxation transfer prices U.S. multinational variable set equal