TY  - JOUR
AU  - Rose,Andrew K.
AU  - Spiegel,Mark
TI  - Offshore Financial Centers: Parasites or Symbionts?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12044
PY  - 2006
Y2  - February 2006
UR  - http://www.nber.org/papers/w12044
L1  - http://www.nber.org/papers/w12044.pdf
N1  - Author contact info:
Andrew K. Rose
Haas School of Business Administration
University of California, Berkeley
Berkeley, CA 94720-1900
Tel: 510/642-6609
Fax: 510/642-4700
E-Mail: arose@haas.berkeley.edu

Mark M. Spiegel
Federal Reserve Bank of San Francisco
101 Market Street
San Francisco, CA 94105
E-Mail: mark.spiegel@sf.frb.org
AB  - 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. OFC proximity is associated with a more competitive domestic banking system and greater overall financial depth.
ER  -