Offshore Financial Centres: Explaining the Regulation

Paolo Baffi Centre Bocconi University Working Paper No. 170

48 Pages Posted: 20 Sep 2006

See all articles by Donato Masciandaro

Donato Masciandaro

Bocconi University - Department of Economics; Bocconi University - Department of Economics (ECO)

Date Written: September 2006

Abstract

This paper claims that the regulation profile of the Offshore Financial Centres (OFCs) respect to the international standards defined to prevent potentially harmful phenomena - such as aggressive taxation, financial instability, money laundering and terrorism finance - depends on their specific structural features. In the designing of the regulatory framework the OFCs policymakers define the optimal degree of compliance maximizing a political cost benefit function. A simple model shows that the policymaker convenience to establish an OFC jurisdiction can depend on peculiar country endowments, consistently with a path dependency approach. The model is empirically tested using a 222 countries' sample, using different classifications of OFCs. On the one hand we find that the probability to be an OFC is greater with higher political stability, lower crime level, lower voice in international organizations, and if the country is characterized by a Common Law juridical system. Furthermore a low resources endowment seems to have a slightly influence on the choices to be an OFC. On the other hand it seems not to be crucial to use English as official language, to be a former colony, and also the geographical position it is not fundamental. The results are used for an overall assessment of the adequacy of the international policy aimed to fill the regulation gap, raising doubts on the persistency of the name and shame approach.

Keywords: offshore centres, theory, empirical analysis, regulation, tax competion, financial stability, financial integrity

JEL Classification: F2, G3

Suggested Citation

Masciandaro, Donato, Offshore Financial Centres: Explaining the Regulation (September 2006). Paolo Baffi Centre Bocconi University Working Paper No. 170, Available at SSRN: https://ssrn.com/abstract=931151 or http://dx.doi.org/10.2139/ssrn.931151

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - Department of Economics (ECO) ( email )

Via Gobbi 5
Milan, 20136
Italy

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