The obscure truth about governance quality and tax havens : an empirical analysis of the effect of governance and institutional quality on the nancial secrecy index
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- Master Thesis 
This thesis aims to clarify the obscure perception about tax havens being well-governed countries. Empirical studies on tax havens usually take a dichotomous approach whereby a jurisdiction is either a tax haven or not. We argue that this approach is of little value considering there is no common and overall accepted de nition of tax havens. Previous literature has given too much attention to small and insigni cant tax havens, while large economies have gone unnoticed. We challenge the dichotomous approach and contribute to the tax haven literature using the Financial Secrecy Index as our dependent variable. With this new measure, we turn to examine the determinants of tax haven status, and we do not nd a signi cant and identi able chain of causation for the relationship between tax haven status and governance quality. Thus, we can disprove some of the ndings from Dharmapala and Hines (2009), regarded by many as the most in uential evidence on the relationship between governance and tax havens. However, we nd supporting evidence for a low degree of corruption as important for tax haven status. This nding suggests that tax havens' credibility to attract nancial capital is closely attached to a low degree of corruption, at least on paper. Finally, evidence shows that large developed economies with oversized nancial centers su er from the country capture phenomenon. Rather than serving the economy, large nancial centers now prey on it, eventually undermining governance and institutional quality. Keywords - Tax Havens, Governance Quality, Institutions, Financial Secrecy Index, Corruption, Country Capture.