Tax and the financial crisis - new paper

We have written extensively already on the many and profoundly important ways in which secrecy jurisdictions (or tax havens, if you will) are implicated in the long genesis and gestation of the financial crisis that erupted in 2007. As far as we are aware, nobody has directly challenged what we have written -- though there are several who have made lazy, sweeping exonerations of tax havens -- and as a result we presume that what we have said is quite right. (Please do have a go at challenging our specific points, if you feel the need to disagree. Try any of these articles here.)

We now have another paper to add to our collection (hat tip: David McNair, Christian Aid.) Entitled Tax and the Crisis, it is by Michael Keen, Alexander Klemm and Victoria Perry of the IMF's Fiscal Affairs department, and it follows on from an earlier IMF paper on a similar subject. The latest paper, like the last, isn't only about tax havens - though they are an important component of the problem.

The new paper's abstract reads as follows:

Did taxation play any role in precipitating the financial crisis? Are there lessons to be drawn for future tax reform priorities? This paper reviews the main channels by which tax effects might have been felt and which may require forceful attention. These include in particular the large tax biases favouring debt finance and, in some countries, investment in housing. The complexities of national tax codes, and the international interaction between them, have, moreover, encouraged the use of complicated financial instruments and international tax planning, reducing transparency. Tax distortions did not cause the crisis – in the sense that there are no obvious tax changes likely to have triggered it – but they may well have contributed by leading to higher leverage and more complexity than would otherwise have been the case. Most of these distortions have long been a source of concern, but dealing with them may be more important than previously supposed.

Once again, the paper is here.