 Yeah, let's just jump straight into it. This is a presentation about a paper called elicit financial flows and the global south It's a review of method methods and evidence from the literature So it might seem a bit redundant trying to explain to you guys why it's important to look at the elicit financial flows But anyway Text revenues they're relative to GDP they remain low in the global south relative to more advanced economies and They are inherently associated with international transactions Which could create this kind of unfair competition and mislocation of resources. So for example An international firm has the opportunity to engage in profit-shifting which domestic firms do not have that could create an unfair competition Also, there's a strong over representation of wealthy households engaging in in elicit financial flows Which further Increases inequality So it's not the poor worker on the ground that is Sending its his money to Panama that are that is the more wealthy wealthy people and Then perception about other people evading could also lead to the risk of you evading increasing as well So just by changing the perception about people evading could actually have real effects But what is elicit financial flows then? It might seem weird because I think everyone has a sense of what it is But still in the both in the literature and among big organizations There is not a consensus. So that is Stated by my a false data in the following way if there is already a clear global consensus of The wider definition of elicit financial flows, then it is a well-kept secret So why is this? Most of it revolves around the word elicit and how we should think of that should be equated with illegal That is the big question So just looking at the dictionaries Then it is indeed different So Oxford dictionary says it's something that is forbidden by law rules or customs So it's indeed something that is wider than just Then just something being illegal and the same goes for Cambridge dictionary saying it's illegal or disapproved of by society So again a broader definition than just being illegal the counter argument then is That that customs and what is approved of by society could change Both of you spatially and temporarily so it might differ between countries So what is seen as what is disapproved of by society in one country is not necessarily disapproved of in another There's also temporal differences. So what what we disapprove of today We might not have disapproved of that 20 years ago. So these customs. They are changing over time and over places So a more pragmatic approach is using the legality Approach here The second word financial indicates that it is something to do with cash profits loans or or equities But that leaves out other assets like real estate and luxury goods. So if you buy Big luxury home in Bahamas there and you don't report that to the tax authorities that should Actually not be seen as illicit financial flows because that is not financial So it might be more appropriate considering all types of assets The last one flows indicate that it's assets moving from one person all placed to another so here again, it's it's flows and Later when I will talk a bit about Hidden wealth in general then that will be seen as more like accumulated illicit financial flows All right, so more concretely everyone agrees that illicit financial flows should include Activities that are related to illegal markets. So that could be terrorism tax evasion corruption, etc So what is illegal should also be under illicit financial flows OECD IMF and the World Bank. They use this more narrow definition of of IFFs But they also acknowledge that there is a discussion On whether to include illicit activities as well I should stress that this this presentation is based on on this overview paper that came out a year ago So I'm not completely sure whether they have changed practice since then but at least a year ago They they had this practice on the other hand the European Union the African Union and the UN They further acknowledge legal practices as IFFs. So that could for example be abusive transfer pricing So even though it's not illegal, it might still be considered illicit financial flows Where does that then leave us in the paper? I advocate for the broad definition because if if we are only to use illegal activities Then why shouldn't we just call it illegal financial flows? So if you want to stick to the to the concept of illicit financial flows We should at least acknowledge that there are other activities than just the illegal ones It might be that we can only measure what is illegal, but we should have still acknowledge that there are other flows That are also illicit that we cannot measure. I will skip this theoretical framework Due to time as Finhee was kindly mentioning All right, so in the paper I identify four overall Themes or approaches to studying illicit financial flows One is macroeconomic statistics. That is probably the most used approach that includes studying balance of payments and Also looking into aggregate liabilities and assets I named that the Soukman method So basically liabilities and assets on a global scale should match If they do not then there is something odd going on And what we see in the data is that liabilities are usually higher than assets because you always have an Incentive to report your liabilities, but not necessarily your assets. So Soukman he He interpret this gap as as hidden wealth or misreported wealth You can also look at firms that are only Having activities domestically versus multinational firms, so if firms are more productive in low-tax Countries that could be indicative of profit shifting going on if we do not see the same for domestic firms Scholars have also looked into aggregate corporate income tax basis again seeing how that differ depending on on the corporate tax rates and Finally a newer newer method It's called phantom foreign direct investments. So the idea being that some Some foreign direct investments are only going through a country in order to sort of hide its real real destination As an example Luxembourg has a massive income of foreign direct investments Think at the time of this paper It was four trillion US dollars per year, but they also had outflows of four trillion US dollars per year That is more or less the same as the United States Second method is trade misinvoicing So as a firm you have an incentive to to over report costs when you are importing materials So that you sort of try to bring your cost and and revenues to to match so that you will have no profits and That also depends of course on the corporate tax rate in the country a Third method is looking into intra-firm profit shifting also highly It's well studied So again, basically the idea is that when you are a multinational firm Then you have an incentive to shift profits from high-tax environment to a low-tax environment And there are a fourth more Gather all the all the other approaches Which I will get back to All right, so what do they actually find in the literature so again here I should stress that capital flight is not necessarily the same as illicit financial flows But capital flight from developing countries ranges from around 150 billion US dollars to 200 billion dollars. This is these these numbers are by now a bit old that was in 2010 2014 more or less the same and Then stucman he has a measure of of this Unrecorded wealth. So these these number this number of seven point six trillion US dollars That is that can be seen as accumulated illicit financial flows So that is this method of comparing liabilities with assets on a global scale and Then he finds that there are that we are short of seven point six trillion US dollars in assets It is also found in the literature that when you compare Domestic firms with with multinational firms then the multinational firms. They are way more Profitable in low-tax environments. So we see a clear tendency that multinational enterprises, they are very productive and profitable in the low-tax environments But the same doesn't go for domestic firms So for domestic firms, it's pretty much flat Trivelia and Copham and Jansky. They also try to measure the global tax laws and they find measures of 500 to 650 billion US dollars per year So it's it's massive numbers that that we are that we are missing out on This newer method of if the eyes phantom if the eyes Says that shows that almost 40% of global foreign direct investments. They were not related to any real activity So they pretty much just went from one country through a transit country and then on to the final destination country for the for the profit-shifting literature There is these there are some meta-studies finding that that The simulisticity of profitability relative to the corporate tax rate gap that ranges between minus 1.3 to minus 2.8 what does that mean? That means that when the corporate tax rate gap increases by 1 percentage point Then the profitability is expected to go down by more or less at 1 percent And it is found that less developed countries. They are more exposed to to profit-shifting. There are not that many countries Or that many studies that have looked at this because of lack of data But the ones that are there they actually find that that that the lower the income of the country the more exposed The country is to profit-shifting a lot of this profit-shifting is accountable by by firms Trying to get to zero. So what is called zero profit firms? so basically It's when you take these zero profit firms out then It's hard to find any evidence of of profit-shifting And this in line with high fixed cost of setting up a tax-optimizing scheme Then profit-shifting is also concentrated among a few large M&E's so in Davies and co-authors example when they took out the ten The ten largest largest companies I think was the ten largest companies They couldn't find any evidence of profit-shifting anymore Another study from South Africa on the other hand shows that transfer mispricing is of similar magnitude in South Africa So transfer mispricing is just one way of of switching profits Where step-shifting is more pronounced in developing countries. So again, there are not that many Studies here because due to a lack of data available There are also a lot of other ways to measure illicit financial flows one is Performed by Anderson and his co-authors Looking into what happens when a country experience a windfall gain in either oil or in the eight disbursements And what they find is that when when these gains they materialize then you see an outflow of money to tax havens So that is both when the oil industry experiencing windfalls But also when I think in this case it was World Bank eight projects when they are announced It's also found the tax havens secrecy services They are of high value to firms by looking into what happened when when the Panama paper they leaked then some Some companies they were associated to the individuals that was named in the leaks and the value of those companies Decreased relative to other companies that were not associated with the Panama leaks also using the Panama leaks London you and Villas and Avila Machetcha They look into what happened after a wealth tax reform took place in Colombia And they could see that at the same time of the implementation of that reform money were outflow We're flowing out to tax havens then there are also a bunch of other studies that are related to to anti illicit financial flow legislation and And the the problem with these studies is that they are almost entirely Based on high-income country data So there are not that many studies out there that are looking into Into The effects of anti illicit financial flow legislation in developing countries So a few suggestions for future work We should look into the indirect and the direct evidence of profit shifting in the global south right now The evidence is mostly based on on high-income countries Further as and also related to that is the question on how we most efficiently tax multinational enterprises Then we should also have a look at anti illicit financial flows legislation and information exchange treaties in the global south as I mentioned on the Previous slide. There are not any own very very few studies of anti IFF legislation from developing countries It is also very It would be very good if there were more Studies on the effects of improving capacity of tax authorities. There are also sessions here at this conference looking into this this problem And in particular evaluating different types of technical assistance and what what matters the most Yeah, and then there are some more technical Questions here, so we should advance on the precision of shipping and insurance cost in order to improve the validity of Of the trade misadvoiding methodology because there are some issues with this with this methodology There are already studies looking into this trying to improve on it But these are still in the process in the in progress Yeah, then I have another technical Suggesting here because the meta-analysis that I mentioned on profit-shifting they are based on pretty much just taking all all the studies that were that were made without any Screwed anization of of the included studies So it would be it would be beneficial to have another meta study where The authors more more what can say where they scrutinize these studies more carefully and only include the ones that are that are very That that can be seen as as solid evidence Because in in some of these studies that where they include they found Simulasticities of minus five and some were also positive and it some of them just didn't make sense so if if they are Affecting the the the results then we should be careful with it All right I don't want to go through the conclusion because I already went through and Finn also Stated to me that I have zero minutes left So thank you all