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:

Ludvig Wier, Thomas Tørsløv and Gabriel Zucman: "The Missing Profits of Nations", NBER working paper 24701, August 2018. [Appendix & data webpage]. “Tax evasion and tax avoidance”

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

Published peer-reviewed papers:

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

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

Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman: "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.

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

Op-eds:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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:

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

Skatteparadisene vokser. Aftenposten, 28. juni 2018.

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

Tax Havens Blunt Impact of Corporate Tax Cut, Economists Say. The New York Times, 10. juni 2018.

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

"40% des profits des multinationales sont délocalisés dans les paradis fiscaux". Le Monde, 7. november 2018.

Events

Dialogseminar med Nærings- og fiskeridepartementet, Mai, 2, 2018. With Annette Alstadsæter and Knut Einiar Rosendhal.

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

Project manager