Tax Havens and Global Financial Flows
Paper Session
Saturday, Jan. 7, 2023 2:30 PM - 4:30 PM (CST)
- Chair: Karen K. Lewis, University of Pennsylvania
Effects of International Tax Provisions on Domestic Labor Markets
Abstract
We study the domestic labor market effects of two historical, but highly applicable, US international tax provisions. The first provision, "Check-the-Box," (CTB) decreased effective tax rates abroad by increasing the ability of multinational corporations to shift profits to low-tax jurisdictions. The second provision, the 2004 "repatriation holiday," (RH) decreased the tax costs of repatriating foreign earnings by 85%. To study the effects of each provision, we use a difference-in-differences framework that estimates the effect of local exposure to each provision on employment and earnings. According to our preferred specification, CTB resulted in losses of 1.7 million jobs and $64 billion in total labor earnings annually. We find the RH did not have any statistically significant effects on domestic labor markets. These results confirm the long-held, but empirically unsupported, hypothesis that international tax systems have large effects on domestic workers.Automatic for the (Tax) People: Information Sharing and Cross-Border Investment in Tax Havens
Abstract
This paper examines the impact of international automatic exchange of information (AEOI) treaties on cross-border investments in tax havens. Using a restricted version of the BIS Locational Banking Statistics we find that AEOIs significantly reduced cross-border deposits. A sectoral breakdown assessment reveals that households were the key driving force behind this contraction. Analyzing other forms of cross-border investment, we observe that tax havens’ portfolio and direct investment assets in non-haven countries fell significantly after AEOI introduction, indicating a reduction of round-tripping investments. However, we also document evidence of households’ deposits shifting to non-AEOI haven countries. Moreover, we observe larger FDI positions and deposits by non-bank financial institutions between tax haven countries, suggesting an increased use of shell corporation networks since AEOI introduction.Homes Incorporated: Offshore Ownership of Real Estate in the U.K.
Abstract
Ownership of real estate through offshore corporations creates opportunities for tax evasion and money laundering and may have a range of undesirable effects on housing markets. In this paper, we study offshore ownership of real estate in the United Kingdom by combining several data sources: administrative data from the land register, a comprehensive transaction database and a handful of offshore data leaks. In the first descriptive part of the paper, we show that the market share of offshore corporations has increased over time and varies strongly across market segments: around 1% overall, but more than 10% for top-end properties. For the subsample of properties where offshore data leaks allow us to trace ownership through the offshore corporation to the ultimate owners, we find that most have ties to Africa, Asia and the Middle East, but that the largest 'foreign' investor country is the United Kingdom itself. Next, we present causal evidence that changes in capital gains taxes and the introduction of an ownership register induced strong responses in patterns of offshore ownership. This is consistent with both taxation and secrecy being important motives for real estate investment through offshore vehicles. Finally, we show that the Brexit referendum caused a large differential decrease in real estate prices in local areas with more offshore ownership relative to close-by local areas with otherwise similar ex ante characteristics. This finding suggests that capital flight triggered by the surprising decision to leave the European Union depressed housing prices and, more generally, that real estate investments through offshore vehicles can have significant real effects in housing markets.Discussant(s)
Diego Perez
,
New York University
Rebecca Lester
,
Stanford University
Lorena Keller
,
University of Pennsylvania
Bruno Pellegrino
,
University of Maryland
JEL Classifications
- F3 - International Finance
- G1 - Asset Markets and Pricing