Academic Research Shows Tax Havens Benefit the Global Economy

Competition Between Nations Lead to Better Policy, Better Economic Performance – Tax Havens Benefit

(Washington, DC, Monday, June 12, 2006) – The Center for Freedom and Prosperity Foundation today released a research paper, entitled “Tax Havens, Tax Competition and Economic Performance,” which finds, through a review of the recent scholarly literature, that low-tax jurisdictions promote global economic growth. Written by Dr. Yesim Yilmaz, a research fellow with CF&P Foundation, the study presents evidence that so-called tax havens provide a tax-efficient platform for cross-border investment, help boost capital formation, and also encourage pro-growth tax policies in non-tax haven countries – all of which boost economic performance.

The paper also points out that the United States is the world’s largest beneficiary of tax havens and tax competition, both because the U.S. is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy.

Comments on the study:

Andrew Quinlan, CF&P Foundation ~ “This thoroughly researched study demonstrates that low-tax jurisdictions play a vital role in boosting capital formation and thus promoting global economic growth. The U.S. is a disproportionate beneficiary of this process, since America is the world’s largest tax haven.”

Daniel Mitchell, The Heritage Foundation ~ “So-called tax havens have played an important role in the global shift to lower tax rates. But equally important, they provide a refuge for investors and thus minimize the destructive economic impact of anti-savings, anti-investment tax policy in high-tax nations.”

Veronique de Rugy, American Enterprise Institute ~ “Dr. Yilmaz reviews the academic literature and confirms that low-tax jurisdictions promote world economic growth, both directly – by pressuring high-tax nations to adopt better tax policy – and indirectly – by providing avenues for tax-efficient investment.”

Executive Summary

Low-tax jurisdictions play a valuable role in the global economy. Economic research indicates that so-called tax havens provide a tax-efficient platform for cross-border investments, help boost saving and investment, and thus increase global economic growth. Tax havens also encourage good policy in non-haven countries. In part because of jurisdictional competition, maximum tax rates on personal income have fallen by about 23 percentage points since 1980 and top tax rates on corporate income have fallen by almost 20 percentage points. These policies have boosted growth and job creation.

The United States is the world’s largest beneficiary of tax havens and tax competition, both because the U.S. is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy. Foreigners have more than $11 trillion invested in the U.S. economy, including more than $7 trillion invested in America’s financial markets. Nearly $1.3 trillion is placed in the U.S. financial system by Caribbean institutions. This money helps finance America’s economic growth.

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