Why do politicians create tax havens?

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A Norwegian reader asked recently on this site:

Why would a state actively strive to become a tax heaven (as you mean UK is/is becoming) if there are no apparent domestic benefits to it (like tax revenue) or if the benefits outweighs the cost? Why do tax heavens want to attract capital? What do they want?

This is a good question. It does however assume that the interests of politicians are aligned to those of the countries they govern. Economists make such assumptions; in the real world this is not true.

Politicians are frequently (too often, I say) seeking office for the wrong reasons. David Cameron is a great example in the UK. He obviously wants to be prime minister, but what drives him apart from the desire for aggrandisement? There is absolutely no indication that the man has any political conviction at all. Nor is there from his party. Although they claim they want to form a government the UK's shadow cabinet hold no less than 115 appointments outside parliament between them at a rate of over 5 each, on average. That's some indication of where their priorities lie.

When conviction is absent from politics, or if it is corrupted by the political process (and that is common), or if loyalty is actually to other masters then, assuming that cash is the alternative driving force for these people (and it often is, unfortunately) then it's easy to see how they can be corrupted into believing that supporting a tax haven is in their personal interests as well as those of the client group they seek to serve, who invariably have cash and are willing to use it to buy such opinion.

This is called corruption.

Reclaiming democracy is part of tax justice. Requiring that politicians be free of external influence is part of that process.