Banks defy gravity in tax havens

This article examines the international activity of banks. We use a gravity framework and country-by-country reports (CbCR) to predict the turnover of European Union (EU) banks worldwide, including jurisdictions usually considered tax havens. Our results show that: (1) about half of the activity of EU banks in tax havens, which accounts for 17% of their global activity, is not explained by standard gravity factors; (2) abnormal activity is concentrated in only a few tax havens (Luxembourg, Hong Kong, and Singapore); and (3) abnormal activity has been stable since the introduction of CbCR.