Disruption and Foot-Dragging in the New Tax and Transparency Standards

In the wake of the financial crisis of 2007-2008, major Western states have overhauled the architecture for global tax regulation. In order to eliminate tax evasion in the world, the OECD started requiring financial centers to exchange information on bank accounts. Yet even while most holdouts have agreed to the new tax standards, their overall effectiveness remains questionable, especially given recurring leaks of offshore investments. This paper provides an explanation for this puzzling phenomenon. The paper carefully distinguishes between the different resistance strategies offshore financial centers employ while still seeming compliant, and makes the claim that state actors will decide on one strategy rather than another given their access to international rule-making fora and their commitment to defend their financial sector. The theory is then tested by means of qualitative process-tracing in the matched cases of the Bahamas and Barbados. The case studies draw on archival research and original interviews with policymakers and finance officials to show the importance of access and commitment for state actors as they decide on a strategy of resistance. Ultimately, the paper argues that in order to assess the effectiveness of the new tax standards we need to broaden our understanding of the type of actions policymakers can pursue beyond simple compliance or non-compliance. The study therefore also has important implications for other policy areas of regime emergence and norm diffusion.