The impact of blacklisting tax havens: An analysis using U.S. data

• Thesis title in Czech: Dopad zařazení daňových rájů na černou listinu: Analýza pomocí dat z USA
• Thesis title in English: The impact of blacklisting tax havens: An analysis using U.S. data
• English key words: tax havens, FDI, US, OECD blacklist, effectivness of blacklists, tax competition
• Academic year of topic announcement: 2023/2024
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: PhDr. Miroslav Palanský, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 26.06.2024
• Date of assignment: 26.06.2024

References

Bibliography
Jackson, James K. OECD Initiative on Tax Havens. DIANE Publishing, 2010.
Kudrle, R. T. (2005). US defection from the OECD “Harmful Tax Competition” project: rhetoric and reality.
Organization for Economic Co-operation and Development. (1998). Harmful tax competition: An emerging global issue. OECD Publishing.
Sharman, J. C. (2006). Havens in a storm: The struggle for global tax regulation. Cornell University Press.
Hines Jr, J. R. (2005). Do tax havens flourish? Tax policy and the economy, 19, 65-99.

Preliminary scope of work in English

Research question and motivation
The issue of tax havens has long posed a challenge to global economic integrity. One of ways to fight tax havens is to attack their reputation but is it enough? That is the question I would like to answer in my research, namely I would like to concentrate myself on the OECD’s list of non-cooperative jurisdictions from 2000 and show whether shaming a country for unfair tax practices is sufficient to make a difference.

A precursor for this blacklist was a report published two years earlier called “Harmful Tax Competition: An Emerging Global Issue.” In this report the OECD investigated 47 mostly small or island countries with low tax rates out of which then 35 were blacklisted. As I mentioned, the nature of this blacklist was naming and shaming those countries but early on the OECD has discovered a potential need for sanctions such as imposing withholding taxes and disallowing deductions and exemptions on transactions conducted with tax havens. In the second part of this statement the OECD mentioned harmful tax practices among its own members, namely Luxemburg and Switzerland and recognized that defensive measures could not legitimately be applied to only non-OECD member states. The Clinton administration welcomed the report, and the US Treasury proposed legislative and regulatory initiatives in its Greenbooks for 1998–2001, aiming to incorporate OECD standards into law (US Department of the Treasury,1998–2001).

The reason I chose US to examine the effect of this particular blacklist is that the U.S. has one of the largest and most influential economies with global leaders in multiple industries, therefore there is a fair amount of data available. What’s more, U.S. firms have historically been among the most active in using tax havens to minimize tax liabilities. For instance, in 1999, 59% of U.S. with substantial foreign operation has subsidiaries in tax havens (Desai, Foley and Hines, 2006b). That’s why, the sample of firms from U.S can have wide implications for global economics and the overall effectiveness of a blacklist. Moreover, most of the available literature concentrates on the blacklists published by EU, but those blacklists are very frequently changed, and their effectiveness is in some cases hard to measure, for example St. Kitts and Nevis was on the first blacklist published in 2015, then removed in 2017, then added again in 2018 and removed in less than two months. All this is why I chose to study one of the first blacklist, i.e. OECD’s list of non-cooperative jurisdictions from 2000.


Contribution

I intend to show whether naming and shaming tax havens without imposing any sanction can be an effective strategy on a clear example of US. The existing literature towards this topic is limited so I would like to expand it. In practice my contribution can be used to justify or dismiss the usage of blacklist of similar basis.



Methodology

I am going to examine the data from US Bureau of Economic Analysis completed with the data from World Bank and analyze the change in foreign direct investment (FDI) to see if the money has shifted from the location mentioned in the OECD list. I will do so by collecting the data from years 1995-2005 to capture the trends before and after the blacklist. To analyze the changes, I will also include non-blacklisted countries as a control group as well as other factors that possibly have an effect on FDI to avoid any bias such as the country’s GDP and other economic or political factors.

Outline
Introduction
Literature review
- OECD blacklist
- FDI
- Tax havens and US
Data
Methodology
- Review of variables
- Construction of my model
Results
- Interpretation of the results of my model
- Discussion whether other approaches of OECD’s selection may have influenced the outcomes
Conclusion