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Tax Evasion and Swiss Bank Deposits

  • Niels Johannesen

    (Department of Economics, University of Copenhagen)

Bank deposits in jurisdictions with banking secrecy constitute an effective tool to evade taxes on interest income. A recent EU reform reduces the scope for this type of tax evasion by introducing a source tax on interest income earned by EU residents in Switzerland and several other jurisdictions with banking secrecy. In this paper, we estimate the impact of the source tax on Swiss bank deposits held by EU residents while using that non-EU residents were not subject to the tax to apply a natural experiment methodology. We find that the 15% source tax caused Swiss bank deposits of EU residents to drop by more than 40% with most of the response occurring in two quarters immediately before and after the source tax was introduced. The estimates imply an elasticity of Swiss deposits with respect to the net-of-source-tax-rate in the range 2.5-3.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 2010-05.

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Length: 21 pages
Date of creation: Feb 2009
Date of revision: Sep 2010
Handle: RePEc:kud:epruwp:10-05
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  1. Zsolt Darvas, 2012. "Real effective exchange rates for 178 countries: A new database," IEHAS Discussion Papers 1210, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Johannesen, Niels, 2014. "Tax evasion and Swiss bank deposits," Journal of Public Economics, Elsevier, vol. 111(C), pages 46-62.
  3. H. Huizinga & Ga�tan Nicod�me, 2001. "Are international deposits tax-driven?," European Economy - Economic Papers 152, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  4. Tina Klautke & Alfons Weichenrieder, 2008. "Interest Income Tax Evasion, the EU Savings Directive, and Capital Market Effects," CESifo Working Paper Series 2300, CESifo Group Munich.
  5. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics 3744, London School of Economics and Political Science, LSE Library.
  6. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  7. Niels Johannesen & Gabriel Zucman, 2014. "The end of bank secrecy? An evaluation of the G20 tax haven crackdown," LSE Research Online Documents on Economics 56125, London School of Economics and Political Science, LSE Library.
  8. Thomas Hemmelgarn & Gaëtan J.A. Nicodème, 2009. "Tax-Co-ordination in Europe: Assessing the First Years of the EU-Savings Taxation Directive," CESifo Working Paper Series 2675, CESifo Group Munich.
  9. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  10. Chetty, Nadarajan, 2009. "Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance," Scholarly Articles 9748527, Harvard University Department of Economics.
  11. James R. Hines, 2010. "Treasure Islands," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 103-26, Fall.
  12. Niels Johannesen & Gabriel Zucman, 2012. "The End of Bank Secrecy? An Evaluation of the G20 Tax Haven Crackdown," PSE Working Papers halshs-00665054, HAL.
  13. Gabriel Zucman, 2013. "The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors?," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1321-1364.
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