| Project Detail |
Understanding the enigma of tropical tax havens
Tropical islands are often labelled as tax havens, yet few have truly thrived as financial service exporters. This raises the question why these islands haven’t all likewise embraced this development strategy. In this context, the EU-funded WOWMA project will explore the role of political stability and ‘whiteness’ in attracting foreign capital, It aims to reshape our understanding of tax havens and the forces that drive their emergence. The project puts forward a theory that draws connections between an island’s economic structure during colonial rule, the lack of income taxes, and the persistence of white oligarchy. WOWMA applies causal inference methods to original historical data collected from archival sources.
Tropical islands are often stigmatized as tax havens. But only a few tropical islands are important exporters of financial services. This is surprising since many of them feature attributes associated with tax havenry. They are small, sovereign, reachable from major financial centers within a few hours, and practice British common law. Why have so few applied tax havenry as a development strategy, nonetheless?
Conventional wisdom suggests that political stability, often measured with contemporary indicators of good governance, makes the difference. The perception of political stability among foreign investors is, however, interwoven with racist biases. Previous research shows that tropical islands had to emphasize their British heritage, essentially a code for whiteness, to attract foreign capital during decolonization.
WOWMA’s objective is thus to explain why some tropical island jurisdictions were better able than others to convey stability through an image of whiteness in this historical period. In contrast to previous research emphasizing the rule of law, WOWMA investigates the hypothesis that the absence of income taxes paired with white control over government distinguished emerging tax havens from other tropical islands.
To this end, WOWMA (1) proposes a new theory on the emergence of tax havenry in the Global South, linking an island’s economic structure under colonial rule to the absence of income taxes and the persistence of white oligarchy; (2) applies causal inference methods on original historical data gathered from archival sources; and (3) probes the persistence of racist biases in investment decisions through conjoint experiments.
The project provides unprecedented depth in the study of small island states’ political and economic development. It foregrounds the entanglement of racism with perceptions of political stability and develops new strategies for its measurement. |
