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The Richard A. Musgrave Collegiate Professorship in Economics Inaugural Lecture
James R. Hines, Jr.
Professor of Economics
Professor of Law
Professor of Business Economics
In movies and novels, tax havens are often settings for shady international deals; in practice, they are rather less flashy. Tax havens typically tax inbound investment at zero or very low rates, and further encourage investment with favorable legal environments, and, in some cases, laws that promote investor secrecy. Tax havens are small; most are islands; all but a few have populations below one million; and they have above-average incomes. The United States and other higher-tax countries frequently express concerns over how tax havens may affect their economies. Do they erode domestic tax collections; attract economic activity away from higher-tax countries; facilitate criminal activities and corrupt dictatorships; or reduce the transparency of financial accounts and so impede the smooth operation and regulation of legal and financial systems around the world? Do they contribute to excessive international tax competition? These concerns are plausible, albeit often founded on anecdotal rather than systematic evidence. Yet tax haven policies may also benefit other economies and even facilitate the effective operation of the tax systems of other countries; and other countries, including the United States, may be largely responsible for many of the problems commonly attributed to tax havens. This lecture evaluates the behavior and consequences of tax havens in the modern world.
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