Offshore financial centers
Subtitle: parasites or symbionts?
By: Andrew K. Rose and Mark M. Spiegel.
Contributors: Spiegel, Mark.; Federal Reserve Bank of San Francisco.
Series: FRBSF working paper ;; 2005-05; FRBSF working paper (Online) ;; 2005-05.
Publisher: Federal Reserve Bank of San Francisco
Published: 2004
Place of publication: [San Francisco]
Language: eng
Format: Electronic resource
Subjects: Banks and banking, International.; Tax havens.; Financial services industry.
Notes: Includes bibliographical references.
Title from PDF file (viewed on Oct. 25, 2005).
"May 2005."
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
Table of contents: title: This paper analyzes the causes and consequences of offshore financial centers (OFCs). Since OFCs are likely to be tax havens and money launderers, they encourage bad behavior in source countries. Nevertheless, OFCs may also have unintended positive consequences for their neighbors, since they act as a competitive fringe for the domestic banking sector. We derive and simulate a model of a home country monopoly bank facing a representative competitive OFC  which offers tax advantages attained by moving assets offshore at a cost that is increasing in distance between the OFC and the source. Our model predicts that proximity to an OFC is likely to have pro-competitive implications for the domestic banking sector, although the overall effect on welfare is ambiguous. We test and confirm the predictions empirically. Proximity to an OFC is associated with a more competitive domestic banking system and greater overall financial depth.