DP14756 Grey Zones in Global Finance: the distorted Geography of Cross-Border Investments

Author(s):	Anne-Laure Delatte, Amélie Guillin, Vincent Vicard
Publication Date:	May 2020
Keyword(s):	Capital openness, Cross-border investments, Gravity Equation, tax havens
JEL(s):	F23, G21, H22, H32
Programme Areas:	Financial Economics, International Macroeconomics and Finance
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14756

Tax avoidance schemes generate artificially complex cross-border financial structures inflating measured international investment stocks in tax havens. Using a standard gravity framework, we estimate that about 40\% of global assets (FDI, portfolio equity and debt) are 'abnormal' - unexplained - stocks. Abnormal stocks are increasing over time and concentrated in a limited number of jurisdictions. Six jurisdictions including three European countries are the largest contributors: Cayman, Bermuda, Luxembourg, Hong Kong, Ireland and the Netherlands. Interestingly, the Luxleaks in 2014 do not appear to have diverted cross-border investments away.