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A political economy of tax havens

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  • Hsun Chu
  • Chu-Chuan Cheng
  • Yu-Bong Lai

Abstract

The welfare effect of the existence of tax havens on high-tax countries has not been conclusive in the theoretical literature. Some papers show that the existence of tax havens is harmful to high-tax countries, while other studies argue that the opposite could occur. We aim to address a question: Do these welfare-reducing or welfare-enhancing properties still hold in the presence of lobbying? We find that the welfare-enhancing property does not hold, provided that the policy-maker attaches a sufficiently large weight to the political contribution received. Moreover, we point out that the cooperation among high-tax countries in restricting the international tax planning activity can lead to a lower level of social welfare in all high-tax countries. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Hsun Chu & Chu-Chuan Cheng & Yu-Bong Lai, 2015. "A political economy of tax havens," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(6), pages 956-976, December.
    • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:6:p:956-976
    DOI: 10.1007/s10797-014-9338-8
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    Cited by:

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    2. Zarko Y. Kalamov, 2023. "Internal debt and welfare," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(1), pages 196-224, February.

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    More about this item

    Keywords

    Capital mobility; Interest groups; Lobbying; Tax havens; Tax competition; F21; H41; H73;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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