Economic Letters (w/ C. F. Foley and J. R. Hines Jr.) 90, no. 2 (February 2006), 219-224.
When multinational firms expand their operations in tax havens, do they divert activity from non-havens? Much of the debate on tax competition presumes that the answer to this question is yes. This paper offers a model for examining the relationship between activity in havens and non-havens, and discusses the implications of recent evidence in light of that model. Properly interpreted, the evidence suggests that tax haven activity enhances activity in nearby non-havens.