The redistributive impact of hypocrisy in international taxation

Abstract

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.

Great powers in global tax governance: a comparison of the US role in the CRS and BEPS

“…This reveals the 'organized hypocrisy' where the US imposes its regulatory preferences on the global community without adhering to that standard itself. Hakelberg and Schaub (2017) show how FATCA redistributed foreign portfolio investments from tax havens to non-tax havens, but disproportionately to the US.…”

Is neoliberalism still spreading? The impact of international cooperation on capital taxation

“…In contrast, recent studies show that comprehensive AEI -either embedded in the Obama administration's Foreign Account Tax Compliance Act (FATCA) or the OECD's common reporting standard (CRS) -curbs tax evasion by households with foreign accounts. Since their adoption, formerly secretive tax havens have lost a substantial share of their foreign deposit base (Ahrens & Bothner, 2019;Hakelberg & Schaub, 2018), and saw important declines in the number of registered shell companies (Omartian, 2017).…”

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