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This paper surveys tax haven legislation and links the literature on tax havens to the literature on asymmetric information. I argue that the core aim of tax haven legislation is to create private information (secrecy) for the users of tax havens. This leads to moral hazard and transaction costs in non-havens. The business model of tax havens is illustrated by using Mauritius and Jersey as case studies. I also provide several real-world examples of how secrecy jurisdictions lead to inefficient market outcomes and breach of regulations in non-haven countries. Both developed and developing countries are harmed, but the consequences seem most detrimental to developing countries.
KeywordsTax havens Secrecy Private information Moral hazard
JEL ClassificationH25 F23 O1
I am grateful to Gernot Doppelhofer, Evelina Gavrilova, Rachel Griffith, Andreas Haufler, Kai Konrad, Jarle Møen, Agnar Sandmo, Dirk Schindler, seminar participants in Bergen, Oslo, at the IIPF conference in Dresden and at the Max Planck Institute in Munich for helpful comments and suggestions. Financial support from the Research Council of Norway and the Norwegian Tax Directorate is gratefully acknowledged.
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