Tax Havens and Small Island Economies: The Impact of the Panama Papers on the Economy of Panama

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Abstract

The Panama Papers leak has created widespread media attention on global tax evasion and money laundering. This paper is the first to investigate the impact of the Panama Papers on the aggregate economy of Panama, the epicentre of the scandal. Based on a cross-country data set for the time period 1999 to 2018, we adopt a recently developed method called the synthetic control method (SCM) to measure the changes of Panama’s portfolio investment flows, foreign direct investment flows and tourism exports since the scandal. The results reveal three unique stories: 1) both inward and outward portfolio investment of Panama have experienced a considerable decline; 2) foreign direct investment in to and out of Panama are almost unaffected; and 3) tourism exports initially outperformed the level that Panama could have otherwise achieved but subsequently saw a slight drop two years after the scandal. We argue that the negative media coverage of the Panama Papers has raised concerns about the institutional quality of Panama and the perceived risk of investing in the country, though in the short run there may have been the “blessing in disguise” effect on inbound tourism. This study points to future research directions with regard to the role of the media and institutions in cross-border investment activities and the sustainability of tax havens as a model of economic development."
Original languageEnglish
JournalAcademy of Management Proceedings
Volume2020
Issue number1
Early online date29 Jul 2020
DOIs
Publication statusPublished - 1 Aug 2020
Event80th Annual Meeting of the Academy of Management - Online
Duration: 7 Aug 202011 Aug 2020

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