How to tax capital in a globalized world? Lessons from population-wide administrative data

There is growing concern about the practicality of taxing capital in a globalized world. Half of the world's foreign direct investments are routed through offshore tax havens.

prosjekt

About/Aims

Background

In April 2016, The Panama Papers showed that rich individuals routinely use shell companies in tax havens to avoid or evade taxes.

More about the project

Still, little is known about who evades capital taxes, why, and to which extent. Current estimates on offshore tax evasion are based on aggregate data.

We combine Scandinavian administrative micro data with information from Swiss Leaks, Panama Papers, voluntary disclosure of hidden offshore wealth, and random audits to provide new insights in the anatomy of capital tax evasion and how tax evasion varies across the wealth distribution. By combining our results with aggregate data, we can construct revised estimates of income and wealth inequality all over the world, when taking into account income and wealth that is unreported to tax authorities. We also aim at providing credible causal es timates of how capital taxation affects international tax evasion.

Photo

Bruce Rolff, Shutterstock

News/Findings

Results/findings

Drawing on newly published macroeconomic statistics, we estimate the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity - from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised series of top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world. For more details, see the paper by Alstadsæter, Johannesen, and Zucman, recently published in Journal of Public Economics 2018, 162, Page 89-100 : “Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality”.

In a companion paper we attempt to estimate the size and distribution of tax evasion in rich countries. We combine random audits, which has been the key source used to study tax evasion so far, with new micro-data leaked from large offshore financial institutions - HSBC Switzerland (Swiss leaks) and Mossack Fonseca (Panama Papers)- matched to population-wide wealth records in Norway, Sweden, and Denmark. We find that tax evasion rises sharply with wealth, a phenomenon random audits fail to capture. On average about 3% of personal taxes are evaded in Scandinavia, but this figure rises to close to 30% in the top 0.01% of the wealth distribution, a group that includes households with more than $45 million in net wealth. A simple model of the supply of tax evasion services can explain why evasion rises steeply with wealth. Taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly, highlighting the need to move beyond tax data to capture income and wealth at the top, even in countries where tax compliance is generally high. For more details, see the paper by Alstadsæter, Johannesen, and Zucman, forthcoming in American Economic Review: “Tax Evasion and Inequality”.

We also find that after reducing tax evasion - by using tax amnesties - tax evaders do not legally avoid taxes more. This result suggests that fighting tax evasion can be an effective way to collect more tax revenue from the very wealthy. For more details, see the recent working paper by Alstadsæter, Johannesen, and Zucman: “Tax Evasion and Tax Avoidance.”

Reviews

Publications

Working papers:

Thomas R. Tørsløv, Ludvig S. Wier, and Gabriel Zucman (2020): "Externalities in International Tax Enforcement: Theory and Evidence". NBER Working Paper No. 26899.

Ludvig Wier, Thomas Tørsløv and Gabriel Zucman (2018, 2020): "The Missing Profits of Nations", NBER working paper 24701, August 2018. [Appendix & data webpage]. Revised April 2020.

Annette Alstadsæter, Niels Johannesen and Gabriel Zucman (2018): "Tax Evasion and Tax Avoidance". Working paper, August 2018.

Published peer-reviewed papers:

Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman (2019): "Tax evasion and inequality". American Economic Review 109(6), 2073 – 2103.

Annette Alstadsæter, Niels Johannesen and Gabriel Zucman (2018): "Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality". Journal of Public Economics, 2018, 162: 89-100.

Popular science article:

Annette Alstadsæter (2019): "Skatteunndragelse og ulikhet". Samfunnsøkonomen (4), 61 – 63.

Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman (2019): "Tax evasion and inequality". Microeconomic Insights, March 6, 2019.

Annette Alstadsæter (2018): "Kven eig pengane i skatteparadis, og kva betyr dette for global ulikhet?". Samfunnsøkonomen (5), 73 – 76.

Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman (2018): "Tax evasion and inequality". VoxEU, May 9, 2018.

Thomas Tørsløv, Ludvig Wier, and Gabriel Zucman (2018): "The missing profits of nations". VoxEU, July 23, 2018.

Jannick Damgaard, Thomas Elkjaer and Niels Johannesen (2018): "Piercing the Veil". IMF, June 2018.

Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman (2017): "What do tax havens cost in terms of lost tax revenue?" In "Lifting the Veil of Secrecy. Perspectives on International Taxation and Capital flight from Africa", Eds. Odd-Helge Fjeldstad, Sigrid Klæboe Jacobsen, Peter Henriksen Ringstad, Honest Prosper Ngowi, Chr. Michelsen Institute 2017, 54-56.

Op-eds:

Annette Alstadsæter: "Hemmeleghald om skatteparadis må bekjempes". Dagens Næringsliv, November 25 2019.

Annette Alstadsæter: "Skatteparadis angår oss alle". Dagens Næringsliv, September 29 2019.

Gabriel Zucman, and Boris Vallaud: Evasion fiscale : "La France peut prendre l'initiative d'un nouvel impôt fondé sur l'activité réelle des multinationale". Le Monde, November 12 2018.

Gabriel Zucman: "If Ronaldo Can’t Beat Uruguay, the Least He Can Do Is Pay Taxes". New York Times, July 3, 2018.

Annette Alstadsæter: "Kva er eit skatteparadis?". Dagens Næringsliv, Page 3, April 10, 2018.

Annette Alstadsæter: "Tre triks mot skattetriksing". Dagens Næringsliv, Page 3, February 20, 2018.

Gabriel Zucman: ”Den fruktansvärda ojämlikheten bakom global skatteflykt”. ETC, November 19, 2017.

Gabriel Zucman: "Antriebsfeder der globalen Ungleichheit". Der Freitag, November 8, 2017.

Gabriel Zucman: "40 % des profits des multinationales sont délocalisés dans les paradis fiscaux". Le Monde, November 7, 2017.

Gabriel Zucman: "Motor der Ungleichheit". Süddeutsche Zeitung, November 6, 2017.

Gabriel Zucman: "La lógica del libre comercio no justifica el robo de los paraísos fiscales". El Confidencial, Novemnber 7, 2017

Niels Johannesen: "Amnesti kan få svindlere ud af busken". Politiken, November 12, 2017, Page 6.

Gabriel Zucman: "The desperate inequality behind global tax dodging". The Guardian, November 8, 2017.

Gabriel Zucman: "How Corporations and the Wealthy Avoid Taxes (and How to Stop Them)". The New York Times, November 10, 2017.

Annette Alstadsæter: "Faktabaserte fake news?". Dagens Næringsliv, September 5, 2017, p4.

Annette Alstadsæter: "Superrike skattesnytarar". Dagens Næringsliv, July 4, 2017, p3.

Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman: "Tax evaders exposed: why the super-rich are even richer than we thought". The Guardian, June 14 2017.

Annette Alstadsæter: "Formuesskattens fortreffelighet". Dagens Næringsliv, March 22, 2017.

Others:

Gabriel Zucman: "La richesse cachée des nations. Enqête sur les paradis fiscaux". Les Leçons des Panama Papers. October 2017.

Annette Alstadsæter: "Vegen til skatteparadis: følg pengane", In: Årsmelding 2016, Handelshøyskolen, NMBU, 2017, 13-14.

In media:

Bernie bør se til Trump. Dagens Næringsliv, February 14 2020.

Vil forhandle med Pakistan. VG, December 12 2019.

Tax Havens Blunt Impact of Corporate Tax Cut, Economists Say. The New York Times, October 6 2018.

Skatteparadisene vokser. Aftenposten, June 28 2018.

Irish taxes ‘will remain competitive’. The Times, June 28 2018.

Was uns Steuerflucht kostet. Frankfurter Allgemeine Zeitung, June 27 2018.

Multinationals move $16bn from Australia to tax havens each year. The Guardian, June 19 2018.

One in ten dollars of US housing were anonymous. Financial Times, June 15 2018.

Corporations Push Profits Into Tax Havens as Countries Struggle in Pursuit, Study Says. The Wall Street Journal, June 10 2018.

Dagsnytt 18: Trumps skattereform. NRK Radio, December 12 2017.

The Growing Hidden Wealth Problem. Huffington Post, December 6 2017.

« L’évasion fiscale est non seulement injuste mais augmente aussi les inégalités ». Le Monde, November 7 2017.

The "Paradise Papers" leak is shocking but little will change. The Washington Post, November 7 2017.

A new study details the wealth hidden in tax havens. The Economist, October 7 2017.

Les Français détiendraient 300 milliards d'euros dans les paradis fiscaux. Le Figaro, September 30 2017.

Tax Haven Cash Rising, Now Equal To At Least 10% Of World GDP. Forbes, September 15 2017.

76 milliarder gjemt i skatteparadiser. Dagens Næringsliv, September 15 2017.

Chart of the day, offshore tax haven market-share edition. Financial Times, September 11 2017.

Podcast: Gabriel Zucman on tax evasion and inequality. Financial Times' Alphachat, August 4 2017.

Wealth managers are the driving force behind global inequality, according to a sociologist of the ultra-rich. Quartz, June 26 2017.

Berkeley's Zucman on Tax Evasion and Global Inequality. Bloomberg, June 23 2017.

Global inequality much worse than previously thought, say economists. The Independent, June 16 2017.

Tax evaders exposed: why the super-rich are even richer than we thought. The Guardian, June 14 2017.

Super-rich Hid More Money Than You Thought. Finews.asia, June 6 2017.

Tax evasion is shockingly prevalent among the very rich. Vox.com, June 7 2017.

Wer die meisten Steuern am Staat vorbeischleust. Frankfurter Allgemeine Zeitung, June 1 2017.

Super-rich evade on average nearly third of their due tax. The Guardian, June 1 2017.

A new study shows how little tax the super-rich pay. The Economist, June 1 2017.

The super-rich are different: they pay less tax. The Economist, June 1 2017.

Rich people dodge far more tax than previously thought, economists find. The Independent, June 1 2017.

We now know who cheats on their taxes. (Hint: it’s not the poor or middle class). The Washington Post, June 1 2017.

The ultra-rich are hiding way more money overseas than anyone realized. The Washington Post, June 1 2017.

Gabriel Zucman: «L’évasion fiscale est un sport de (très) riches». Le Soir, June 1 2017.

NRK Studio 2: Forskere har avslørt at rike nordmenn gjemmer mye mer penger unna enn vi trodde. Vi avslører HVOR de gjemmer penga. NRK Radio, May 31 2017.

Column: Study points to another advantage of the 1%: They’re great at evading taxes. Los Angeles Times, May 31 2017.

Studie: De rikeste snyter mest på skatten. Dagens Næringsliv, May 30 2017.

Forsker: De rigeste familier i Danmark skjuler 60 milliarder i skattely. DR.dk, May 29 2017.

Ny rapport: De rikaste är värsta skattesmitarna. Aftonbladet, May 29 2017.

Ny forskning: De aller rikeste unndro mest skatt. Aftenposten, May 29 2017.

Events

Course: BUS362 - Corporate Tax and Sustainability

Course: BUS360 - Taxes, Inequality, and Sustainability I

Course: BUS361 - Taxes, Inequality, and Sustainability II

Mer om BUS362 her, og BUS360 samt BUS361 her.

Gjesteforelesning «National tax and international competition: The digital economy from an owner’s perspective». March 11, 2020.

Gjesteforelesning «Uncovering Economic Crime and Shady Business». 15 January, 2020.

Dialogseminar med Nærings- og fiskeridepartementet, May 2, 2018. With Annette Alstadsæter and Knut Einar Rosendahl.

Seminar with NORAD on "Hidden Wealth in Tax Havens - extent and distribution". NMBU, April 16, 2018. Organized by Annette Alstadsæter.

International workshop on "Tax evasion, tax avoidance, and inequality". Copenhagen, October 27-28, 2017. Organized by Annette Alstadsæter, Niels Johannesen and Gabriel Zucman.

Seminar on "Hidden Wealth in Tax Havens". NMBU, October 25, 2017. With Gabriel Zucman and Tax Director Hans Christian Holte.

Researchers

External participants