Published by EH.NET (August 2010)

Ronen Palan, Richard Murphy, and Christian Chavagneux, Tax Havens: How Globalization Really Works. Ithaca, NY: Cornell University Press, 2010. x + 270 pp. $25 (paperback), ISBN: 978-0-8014-7612-9.

Reviewed for EH.NET by Christopher Grandy, Public Administration Program, University of Hawai?i (Manoa).?


This volume describes and analyzes the phenomenon of tax havens — sovereign locations that seek to attract financial activity by offering low, or nil, levels of taxation and/or regulation.? Two of the authors are based in the UK, Palan at the University of Birmingham and Murphy with Tax Research, LLP; Chavagneux is in Paris in editorial posts with Alternatives Economiques and L’Economie politique. They assemble a range of tax haven-related information that haven participants probably prefer not to have assembled, and they take the position that tax havens represent the seedy underbelly of globalization, sucking the life-giving marrow of public revenue away from (a) developed countries, which could use it to ameliorate widening income/wealth disparities, and (b) developing countries, which could invest the resources in building their economies.? This book is not an economic history; instead it strives to summarize what we know about tax havens, to articulate the policy dilemmas they pose, and to review recent responses.? However, the authors seem disinclined to think about the systemic functions of tax havens, and so to consider their role in an evolving global political economy.

The book is structured in four parts, the first of which wrestles with definitional issues, gathers some descriptive statistics, and describes the primary instruments through which tax havens and their clients achieve their purposes.? Part Two briefly reviews the history of the phenomena, with special attention to the unusually large role the British Empire turns out to have played in spawning tax havens.? Part Three discusses the effects of tax havens on developed and developing countries, touching on several economic issues but interpreting them from the perspective of ?World Politics.?? The final part describes what the authors hope is the growing backlash against tax havens and the imminent demise of their topic of study.

Throughout the book, the authors provide a series of shifting, though not inconsistent, definitions (pp. 8, 45, 81) of ?tax havens,? settling in the conclusion (p. 236) on one that emphasizes the intention of jurisdictions to create legislation that facilitates the economic transactions of nonresidents to avoid/evade taxation and/or regulation in their own countries, typically via a veil of secrecy.? Perhaps because of this last attribute, while the authors claim to assemble the data to reveal the impact of tax havens on the world economy, in fact the empirical evidence is weak and fragmentary and they are forced to acknowledge repeatedly the unavailability of information (pp. 55, 68, 76, 83, 86, 94, 165).? The authors convincingly describe the gaps in regulation between tax havens and other jurisdictions, they appear shocked to report that tax officials of major corporations view their jobs in terms of minimizing tax liability (p. 100), and they seem disappointed at the mores of accountants and attorneys who bend the rules (p. 101).

For readers of EH.NET, the material devoted to historical background and the evolution of tax havens is light.? The authors provide a brief survey of tax haven-like phenomena around the world and from the late-nineteenth century.? We learn, for example, of New Jersey and Delaware’s roles in corporation law and that ?New Jersey remains the U.S. ‘home of trusts’? according to their 1944 source (there may be more recent work available).? A chapter is devoted to a brief romp through tax havens which were, apparently, the main legacy of the British Empire.? The book’s non-historical focus is just as well since, for example, we learn of the first U.S. effort to pass an income tax in 1812 to finance the ?War of Independence? (p. 114).

The authors are clear about their point of view.? Those who use and supply tax haven services exploit the mismatch between the global scope of economic activity and the patchwork of political/legal authority.? In essence, tax havens are parasites on the global economy and the system of states (p. 13).? Consequently, global elites are able to avoid their responsibilities (i.e. tax contributions) to the societies that ?sustain them? (p. 181).? This results in tax burdens being shifted to the ?salaried middle classes? (p. 157) and a skewing of the distribution of globalization’s costs and benefits to the favor of elites (pp. 3, 7).? The book offers no data on the distribution of income and wealth, to say nothing of an empirical link between tax havens and those distributions.? While the authors draw connections among major economic institutions and tax havens, it is hard to assess whether the connections illustrate the ?integral part? that tax havens play in global business practice (p. 4), or whether this is simply some form of ?six degrees of separation.?? Readers might pause, for example, at interpretations such as ?virtually the entire international financial industry is heavily involved in money laundering? (p. 72).

It is, perhaps, unfair to consider questions the authors might have explored, rather than sticking to the book they actually wrote, but the work might have considered broader themes.? For example, rather than adopting the current political-economic institutional framework as given, one might explore where the phenomena is likely to take the political-economic order.? If states face economic pressures to ?undermine? others’ tax and regulatory structures, will this lead to an evolution of institutions in which the economic-legal mismatch is ameliorated?? Are tax havens merely a specific historical vehicle for moving social institutions into arrangements that are more appropriate to emerging economic behavior?? On p. 78, the authors describe the role of politics and law in framing economic activity, but they do not seem to consider whether the changing technology and boundaries of economic activity might alter the form and substance of political/legal institutions.?

In chapters eight and nine, the authors present evidence that could be used to document institutional response, noting attention to the issue from the OECD, the United Nations, NGOs, and individual states.? Moreover, in places, they actually refer to institutional changes, for example in describing the European Union’s effort to define a common consolidated corporate tax base (p. 194, 223), or in raising issues of the size and sovereignty of states (p. 238).? Yet the book seems stuck on the notion that the appropriate response to the mismatch between cross-border economic activity and the ?system of states? is to re-double efforts at enforcement.? That might work, but less emphasis on advocacy and greater openness to the implied systemic functions of their phenomena of study might have led the authors to more interesting hypotheses.

In sum, the book provides a useful overview of tax haven phenomena and would be appropriate ?additional reading? for courses in international public finance or international political economy.? Economic historians might find it helpful as a resource on the ?current state? of tax haven issues, but it will not help those mainly interested in historical work.? Those interested in an economic treatment of the issues should look elsewhere.


Christopher Grandy,, is an economist teaching in the Masters of Public Administration Program at the University of Hawai?i.? He has served on the State of Hawai?i Tax Review Commission (2005-2007).? His recent published work includes ?The ‘Efficient’ Public Administrator:? Pareto and a Well-Rounded Approach to Public Administration,? 69(6) Public Administration Review, 1115-23 (Dec. 2009).???????

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