Offshore Financial Centres: Parasites or Symbionts?

Andrew Kenan Rose · Mark M. Spiegel

131 citations0/0 files storedThe Economic Journal

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Corporate Taxation and Avoidance Banking stability, regulation, efficiency Global Financial Crisis and Policies

Abstract

This article analyses the causes and consequences of offshore financial centres (OFCs). While OFCs are likely to encourage bad behaviour in source countries, they may also have unintended positive consequences, such as providing competition for the domestic banking sector. We derive and simulate a model of a home country monopoly bank facing a representative competitive OFC which offers tax advantages attained by moving assets offshore at a cost that is increasing in distance to the OFC. Our model predicts that proximity to an OFC is likely to be pro‐competitive. We test and confirm the predictions empirically. OFC proximity is associated with a more competitive domestic banking system and greater overall financial depth.

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References

2000Financial intermediation and growth: Causality and causes 2004The determinants of cross-border equity flows 1994Fiscal Paradise: Foreign Tax Havens and American Business 2004What Drives Bank Competition? Some International Evidence 2003What Drives Bank Competition? Some International Evidence 2002Does a currency union affect trade? The time-series evidence 2001Financial Structure and Economic Growth 2001Bank Regulation and Supervision: What Works Best?

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