The study said “a large body of economic research over the last 15 years” contradicted the popular view that offshore centres erode tax collections, divert economic activity and otherwise burden nearby high-tax countries.
The study was commissioned by STEP, a London-based professional body for wealth advisers, who make extensive use of offshore jurisdictions. It was published in advance of this weekend’s G20 meeting in St Andrews, where political leaders are set to discuss how to help developing countries secure the benefits of exchanging tax information.
A report to the Treasury, published last week, cited similar research showing that foreign investors were able to lower the “hurdle rate” required to invest in high tax jurisdictions by using nearby tax havens. It said “the UK might be overall better off with them [Crown Dependencies and Overseas Territories] in place on the grounds that their existence allows more investment to flow to the UK than would otherwise be the case”.
Professor James Hines of the University of Michigan, the author of the STEP study, said tax havens “play the important role of pressure valves”, allowing big countries to impose higher taxes on domestic businesses without deterring international investors or triggering “beggar thy neighbour” tax competition.
For every 1 per cent more investment by a US business in a tax haven, there is 0.5-0.7 per cent more sales and investment growth in neighbouring industrialised countries, the study said. Similar results had been drawn from studies of European businesses and those elsewhere, including developing countries.
Prof Hines said his arguments were the “prevailing orthodoxy” among US economists. But Professor Joel Slemrod, another University of Michigan expert on tax havens, has argued they are “parasitic” on the revenues of bigger countries and the abolition of some of the larger ones would leave all countries better off.
The findings are likely to be disputed by groups such as Tax Justice Network, which argues that havens undermine markets, promote crime and threaten democracy by encouraging tax competition.
The study also said offshore centres played a “key role” in the international financial system, improving the availability of credit and encouraging competition in domestic banking.