We sketch a model according to which tax havens attract corporate income generated in corrupted countries. We consider the choice of optimal bribes by corrupt officials and the share of the proceeds of corruption that will be concealed in tax havens. In our framework, tax havens have two opposite effects on welfare. First, tax havens services have a positive effect on welfare through encouraging investment by firms fearing expropriation and bribes in corrupt countries. Second, by supporting corruption and the concealment of officials bribes, tax havens discourage the provision of public goods and hence have also a negative effect on welfare. The net welfare effect depends on the specified preferences and parameters. One source of this ambiguity is that the presence of multinational firms in corrupted countries is positively associated with demanding tax havens operations. Using firm-level data, we provide empirical support for this hypothesis.
