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.