Niels Johannesen and Gabriel Zucman, The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown, 2014 Am. Econ. J. Econ. Policy 65.

The OECD is currently undertaking a major study of virtually every significant issue confronting the international tax regime through its “base erosion and profit shifting” (BEPS) project. Among the proposals for reform include the familiar call for increased penalties on non-cooperative states. In fact, punishment has served as a core feature of virtually every modern attempt to combat tax competition.

But does punishment really work in this context? Niels Johannesen and Gabriel Zucman address precisely this question in their paper The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown. The best way to describe the project is to quote the abstract:

During the financial crisis, G20 countries compelled tax havens to sign bilateral treaties providing for exchange of bank information. Policymakers have celebrated this global initiative as the end of bank secrecy. Exploiting a unique panel dataset, our study is the first attempt to assess how the treaties affected bank deposits in tax havens. Rather than repatriating funds, our results suggest that tax evaders shifted deposits to havens not covered by a treaty with their home country. The crackdown thus caused a relocation of deposits at the benefit of the least compliant havens.

This paper provides an extremely important and timely contribution to the international tax literature. Anecdotal evidence about the effectiveness of punishment has been mixed to date, and there has been little empirical data directly on the question. Further, the question taps into a larger debate over the underlying, root causes of tax competition more generally. By providing empirical data directly on this question, Johannesen and Zucman move the debate forward in an extremely valuable way. Continue reading "Does Punishment Work (at Least in International Tax)?"

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