Healthy and equitable global financial systems require transparency. Banks and policymakers need to know how much money from corporations and individuals is flowing across borders and where it is invested. Tax havens obscure that reality and cost governments billions of dollars in lost corporate and individual tax revenue.
Working in partnership with the European Central Bank, the Global Capital Allocation Project (GCAP), a SIL Stage 2 investment, focuses on tackling the role of tax havens in capital allocation in Europe.
The lab uses large-scale data to examine how capital flows around the world with the goal of improving international macroeconomic policy, including regulating financial markets, preventing financial contagion, and building equitable financial systems.
In March 2023, Peter Coy wrote for the New York Times about novel research carried out by GCAP in which the research team found that Chinese firms have increasingly become prolific users of offshore tax havens to raise capital from foreign investors. Chinese shell companies in the Cayman Islands, for example, now account for more than 50 percent of all outstanding equity issued in tax havens.
Since much of these financing structures, known as variable interest entities (VIEs), rest on shaky legal grounds, they afford uncertain consumer protection to investors in the United States and other countries. A recent bipartisan initiative of Congress, the TICKER Act, was recently proposed to protect American investors from the risks embedded in Chinese VIE structures, such as by requiring explicit risk warning labels when these investments are marketed.