The redistributive impact of hypocrisy in international taxation

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Why do tax havens, whose attractiveness for foreign investors depends upon financial secrecy, agree to automatically report account data to foreign governments? From a contractualist perspective, their cooperation should be motivated by the expectation of joint gains. Prior to such agreement, however, tax havens expected outflows of foreign capital and reductions in economic activity as likely outcomes. We show that the United States (US) imposed automatic information exchange on these countries without itself participating. The result is a strongly redistributive regime that worsens the economic situation of tax havens. By means of a difference-in-differences analysis, we ascertain a substantial and statistically significant negative effect of a US sanction threat on the value of assets held by foreigners in tax havens relative to non-havens. The effect becomes stronger when the US is included in the non-haven group. The analysis confirms the US's ability to redistribute financial wealth internationally through organized hypocrisy.

Original languageEnglish
JournalRegulation and Governance
Volume12
Issue number3
Pages (from-to)353-370
Number of pages18
ISSN1748-5983
DOIs
Publication statusPublished - 01.09.2018
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2017 John Wiley & Sons Australia, Ltd

    Research areas

  • capital flows, coercion, FATCA, sanctions, tax havens
  • Politics

DOI

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  1. Jens Korunig

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