A thesis at NoCeT disproves the claim that tax havens have good governance
Dharmapala and Hines (2009) provide empirical evidence that good governance quality is associated with tax haven status. Vegard Flystveit and Håvard Øyna decided to test this prediction with new data.
They gathered panel data, instead of cross-sectional data like in Dharmapala and Hines (2009). Flystveit (left picture) and Øyna replicate the findings of Dharmapala and Hines, but once they add additional years to their panel, the relationship between tax haven status and the quality of institutions disappears. Instead, Flystveit and Øyna find evidence that low-degree of corruption is important for tax haven status.
They explain their finding with the following story: tax havens are usually economies, which are dependent on the large multinationals that use them to funnel funds. These multinational companies likely have large bargaining power over the policies of the tax haven. Therefore, the ability of havens to attract financial capital is related to a low degree of corruption. Ultimately, tax havens likely suffer from a state capture phenomenon, in which corruption ends up undermining governance and institutional quality.
Flystveit, Vegard, and Håvard Øyna: The obscure truth about governance quality and tax havens: An empirical analysis of the effect of governance and institutional quality on the financial secrecy index. Master Thesis, NHH, 2020.
This thesis was also recently featured in NHH Bulletin (Norwegian text).