This paper studies offshore ownership of residential real estate in the United Kingdom and presents three main findings. First, ownership through offshore tax havens is economically significant with a market share above 1.5% overall and around 15% for top-end properties. Second, both tax and disclosure rules shape patterns of offshore ownership, suggesting that taxation and secrecy are important motives for the beneficial owners. Third, lower offshore demand following the Brexit referendum caused prices and vacancy rates to fall, suggesting that offshore ownership has real effects in housing markets by inflating prices and lowering utilization of the housing stock.

VoxEU column
Frankfurter Allgemeiner Zeitung (german)
OECD Global Forum Plenary Meeting 2023
Welt am Sonntag (german)

This paper studies how national implementation shapes individual responses to global agreements by looking at the introduction of the multilateral standard for automatic information exchange on financial assets, i.e., the Common Reporting Standard (CRS). We utilize rich micro-level data on all bank transfers to Norway. This provides us with unparalleled detail on hidden ownership structures. These data show a significant increase in cash repatriation from tax havens post-CRS implementation. Yet, we document substantial heterogeneity in responses down to a null result if CRS enforcement is weak. Relying on macroeconomic data on crossborder bank deposits, we employ model averaging techniques to establish the most important characteristics of the receiving countries that make the CRS more effective. Our results suggest that a highly digitized tax administration triggers twice the drop in tax haven deposits compared to a tax administration relying on paper tax returns. These results have implications for global policy initiatives more broadly.

This paper characterizes profit shifting behavior across the size distribution of multinational enterprises (MNEs) to evaluate the targeting of the recently introduced Global Minimum Tax (GMT). Using German microeconomic administrative data with no reporting gaps for tax havens, we first document reductions in tax payments after tax haven subsidiaries are added to a group and confirm their outsized productivity. As group size increases, so does the likelihood of including tax haven subsidiaries. Second, we introduce a new methodology to estimate shifted profits at the group level and find an exponential group size gradient in profits shifted to tax havens. A total of EUR 19 billion was shifted to tax havens by German MNEs in 2022. Large groups targeted by the GMT account for 95% of this amount. While this is mainly a function of their size, we also document a positive gradient in profit shifting aggressiveness relative to employment. Third, we relate revenue potential from taxing excess profits in low-tax jurisdictions to compliance costs of the GMT, using a 15% benchmark rate. For groups currently covered by the GMT, revenue gains significantly dominate costs, while extending coverage to additional groups yields only modest net gains. Our results support policy consistency of the GMT in the face of recent unilateral challenges.

This paper studies financial service provision in offshore financial centers (OFCs). Exploiting the natural experiment of recurring hurricanes hitting small islands, I show that local conditions, captured by satellite data, deteriorate significantly for nine months on average. However, both the international bank sector and international investors do not react in OFCs while non-OFCs show strong negative reactions. Instead of being connected to local activity, OFC service provision declines during holidays in London, Tokyo, and New York. Thus, international regulation attempts requiring local enforcement could be targeted better, financial risks could be mis-assigned, and offshore finance is a doubtful development strategy.

Handelsblatt (german)\ finanzen.net

Assuming that not everyone cares about small islands as much as I do, Mark Toth and me wrote an R package based on the code of this paper that allows you to build plots and monthly or yearly time series of nightlight intensity for (almost) any geospatial unit on the planet. Find it on github.

The political economy literature has put forward a multitude of hypotheses regarding the drivers of structural reforms, but few, if any, empirically robust findings have emerged thus far. To make progress, we draw a parallel with model uncertainty in the growth literature and provide a new version of the Bayesian averaging of maximum likelihood estimates (BAMLE) technique tailored to binary logit models. Relying on a new database of major past labor and product market reforms in advanced countries, we test a large set of variables for robust correlation with reform in each area. We find widespread support for the crisis-induces-reform hypothesis. Outside pressure increases the likelihood of reform in certain areas: reforms are more likely when other countries also undertake them and when there is formal pressure to implement them. Other robust correlates are more specific to certain areas — for example, international pressure and political factors are most relevant for product market and job protection reforms, respectively.

The data and a readme for this paper has been made available together with its publication here. I’m in the process of publishing R code on the model averaging routine that will allow you to replicate the paper and more.

Bank deposits in tax havens potentially hide illegal tax evasion. The October 2016 release of bilateral locational banking statistics permits us to illuminate three open issues in this respect. We find that the intended effect of additional information-exchange-on-request treaties vanishes since about 2010. This also holds for bank deposits from tax havens in non-havens. In contrast, new treaties based on the automatic exchange of information show bite. This suggests that tax evasion changes its disguise: it adapts to established information exchange treaties while tax evaders seem (partly) surprised by, and thus react to, new treaty forms.

live interview on DW English
Handelsblatt (Germany)
Der Standard (Austria)
Neue Zuercher Zeitung (Switzerland)

Both the data and the code for this paper have been made available together with its publication here.

This study shows that internal capital markets confer a significant resilience advantage to multinational enterprises (MNEs) during banking crises. First, we document that MNEs experience half the debt contraction of domestic firms during these events. Second, subsidiaries affected by a crisis increase their reliance on intra-group borrowing, offsetting declines in external debt. Third, this ‘multinational capital advantage’ translates into higher post-crisis growth in employment and investment. While this improves the resilience of the host economy to banking crises, the multinational capital advantage may also contribute to the rising market shares of MNEs and increasing firm concentration observed in recent decades.

Offshore banking enables money creation outside of national regulation, yet its full scale remains opaque. This article provides the first comprehensive estimate of Eurodollar banking, the unregulated creation of the United States’ currency under another jurisdiction’s law. Drawing on economic history and interviews with market participants, we conceptualize the Eurodollar system as comprising loans, bonds, and foreign exchange derivatives. Applying a novel measurement method to Bank for International Settlements (BIS) data, we estimate that in 2023, $11.4 trillion in loans and bonds and $75.8 trillion across all instruments constituted unregulated offshore dollars, exceeding the volume of regulated cross-border U.S. dollar instruments. Geographically, Europe – particularly the City of London – remain central to the system. Offshore banking allows privileged private actors to circumvent public rules. It underpins other offshore financial services such as tax planning or sanctions evasion. Yet the recent regulation of Eurodollar futures suggests a latent capacity for public control.

We evaluate the impact of regulatory attempts by German authorities to combat international tax evasion. Monthly cross-border deposits from tax havens in German banks show a 32-34% reduction in reaction to bilateral information exchange. These findings are comparable in magnitude to a number of reference studies which confirms Germany as a valid case study for international tax evasion. We show disaggregated reactions for a list of tax havens and find large reactions to information exchange for Guernsey, the Bahamas, and Jersey. We then employ a manually constructed narrative databases collecting changes in the German tax code and information leaks from tax havens. Tax evaders do not react to changes in tax rates and leaks show consistent signs but are rarely significant. These results confirm information exchange as the main focus in the analysis of international tax evasion.

We wanted to use German bank data with relatively high frequency to say more about the anticipation and delays in tax haven transfers in reaction to international policy changes. While we were well able to establish the general patterns in German data that are documented globally elsewhere, we did not find anything particularly surprising in the timing.