In Praise of Tax Havens: International Tax Planning and Foreign Direct Investment

By Qing Hong, M. Smart. Social Science Research Network, 2007

290 citations recorded by the source corpus.

The multinationalization of corporate investment in recent years has given rise to a number of international tax avoidance schemes that may be eroding tax revenues in industrialized countries, but which may also reduce tax burdens on mobile capital and so facilitate investment. Both the welfare effects of and the optimal response to international tax planning are therefore ambiguous. Evaluating these factors in a simple general equilibrium model, we find that citizens of high-tax countries benefit from (some) tax planning. Paradoxically, if tax rates are not too high, an increase in tax planning activity causes a rise in optimal corporate tax rates, and a decline in multinational investment. Thus fears of a "race to the bottom" in corporate tax rates may be misplaced.

Subfields: Accounting, Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/fa657f5a4cb33108948a3f1fca33ff725dcd87a3

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Citations in the corpus

Intellectual property box regimes: effective tax rates and tax policy considerations (2013, background): “The de facto lower rates achieved through income shifting may also mean that taxes in relatively high-tax countries are having a less detrimental effect on the location of innovative activities than if income and real activities were co-located (Hong and Smart (2010)).”
Firms' Financial Choices and Thin Capitalization Rules under Corporate Tax Competition (2012, background): “However – with the partial exception of Hong and Smart (2010) – none of these studies addresses thin capitalization rules.”
Value Creation, Appropriation, and Distribution: How Firms Contribute to Societal Economic Inequality (2018, background): “As firms seek tax arbitrage by setting operations in tax-friendly locations (Ghemawat, 2003; Hong & Smart, 2010; Kogut, 1983), demand for offshore tax services continues to rise (Boston Consulting Group, 2012).”
Tax Competition When Firms Choose Their Organizational Form: Should Tax Loopholes for Multinationals Be Closed? (2005, background): “See Mintz and Smart (2004). (10)Notice that, if each country employs some of the mobile factor, the allocation of capital across countries, and the net return to mobile capital, can both be expressed solely as a function of the effective tax rates and the total stock of capital.”
INTERNATIONAL CORPORATE TAX AVOIDANCE: A REVIEW OF THE CHANNELS, MAGNITUDES, AND BLIND SPOTS (2018, unknown): “For instance, some have argued that profit shifting can mitigate distortions from existing tax systems on real capital (Hong and Smart, 2010; Desai, Foley and Hines, 2006).”
International Tax Competition and Coordination (2014, unknown): “42 Some papers have compared in this setting information exchange and the imposition of withholding taxes by the low tax country, following Huizinga and Nielsen (2003). This is motivated largely by particularities of the EU Savings Directive, under which countries may either provide information or i”