Navigating the Dual Edges of Tax Havens and Offshore Financial Centers in Global Finance

Yuzhe Yu

GBP Proceedings Series, 2026, vol. 29, 64-71

Abstract: This paper comprehensively examines the dual role of tax havens and offshore financial centers (THOFCs) within the contemporary global financial system, particularly in the context of increasing economic globalization and escalating regulatory complexity. We argue that while these specialized jurisdictions significantly facilitate cross-border capital flows, substantially reduce transaction and financing costs, and provide critical institutional advantages for multinational enterprises, they simultaneously present profound challenges to global economic governance. Specifically, THOFCs frequently enable aggressive corporate tax avoidance, sophisticated regulatory arbitrage, and pervasive financial opacity. These detrimental practices can severely undermine the fiscal capacity of sovereign states and threaten broader systemic financial stability. Drawing on diverse multidisciplinary perspectives from financial services, economic geography, industrial transformation, and individual taxation, this analysis synthesizes the complex mechanisms through which THOFCs operate. Furthermore, the theoretical framework is supported by robust empirical evidence, including the high concentration of outward foreign direct investment (OFDI) and the prevalence of capital round-tripping practices. Ultimately, the study concludes that THOFCs function paradoxically as both vital efficiency-enhancing mechanisms for global capital and primary sources of international governance challenges. To effectively mitigate these inherent vulnerabilities, policymakers must prioritize stronger international coordination, enhance cross-border transparency, and implement robust regulatory frameworks designed to carefully balance the economic benefits of capital mobility against the systemic risks of financial deregulation.

Keywords: tax havens; offshore finance; global finance; regulatory arbitrage; capital mobility (search for similar items in EconPapers)
Date: 2026
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