Sunday, October 21, 2007


Here is an article from The Age describing the systemic intentions to turn Australia into fund management tax haven. As a jurisdiction with the enforcement of tax competition, Australia could attract a singificant inflow of foreign direct investment into various investment funds, depending on the legal requirements set-up by the legislation.

The negative comments on international and intranational tax competition include distorting views hardly matched by contemporary findings and conclusions from research on these particular issues. Lower public expenditure are not inefficient. In fact, numerous empirical and evident studies have confirmed the positive correlation between lower spending and higher growth of output.

On the revenue side, lower tax rates on corporate income significantly affect the amount of collected tax revenue. The evidence has shown, that lower tax rate on corporate income as a source of productive behavior, leads to higher tax revenue in the share of the GDP. In addition, many members of the OECD have significantly lowered tax rates on corporate and also individual income and none of the negatively asserted consequences occured. Ireland lower the corporate tax to 12,5 percent, and tax revenue jumped to record highs. It also had a positive implication on the inflow of foreign direct investment.

A research by US economists Mihit Desai, Fritz Foley, and James Hines (here, here and here) has shown that the relocation of investment capital into low-tax jursidictions actively stimulates the investment level in nearby high-tax jurisdictions. As firms located into tax havens retain higher relative after-tax return, they can maintain a significantly higher level of direct investment than otherwise.

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