Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)

Journal of Accounting Research, Volume 58, Issue 1, March 2020

Posted: 9 Mar 2020

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

Rebecca Lester

Stanford Graduate School of Business

Kevin Markle

Michigan State University

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2020

Abstract

We examine how U.S. individuals respond to regulation intended to reduce offshore tax evasion. The Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions to report information to the U.S. government regarding U.S. account holders. We first document an average $7.8 billion to $15.3 billion decrease in equity foreign portfolio investment to the United States from tax‐haven countries after FATCA implementation, consistent with a decrease in “round‐tripping” investments attributable to U.S. investors’ offshore tax evasion. When testing total worldwide investment out of financial accounts in tax havens post‐FATCA, we find an average decline of $56.6 billion to $78.0 billion. We next provide evidence of other important consequences of this regulation, including increased expatriations of U.S. citizens and greater investment in alternative assets not subject to FATCA reporting, such as residential real estate and artwork. Our study contributes to both the academic literature and policy analysis on regulation, tax evasion, and crime.

Keywords: tax evasion; automatic exchange of information; cross-border deposits; investment; offshore locations

JEL Classification: F42; H24; H26; M48

Suggested Citation

De Simone, Lisa and Lester, Rebecca and Markle, Kevin, Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA) (March 1, 2020). Journal of Accounting Research, Volume 58, Issue 1, March 2020, Available at SSRN: https://ssrn.com/abstract=3538448

Lisa De Simone

University of Texas at Austin ( email )

2110 SPEEDWAY
Stop B6400
Austin, TX 78705
United States

HOME PAGE: http://www.lisa-desimone.com

Rebecca Lester (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

Kevin Markle

Michigan State University ( email )

East Lansing, MI
United States

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