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Tax Evasion and Inequality

Author

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  • Annette Alstadsæter
  • Niels Johannesen
  • Gabriel Zucman

Abstract

This paper attempts to estimate the size and distribution of tax evasion in rich countries. We combine random audits—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. 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.

Suggested Citation

  • Annette Alstadsæter & Niels Johannesen & Gabriel Zucman, 2017. "Tax Evasion and Inequality," NBER Working Papers 23772, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23772
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Niels Johannesen & Tim Stolper, 2017. "The Deterrence Effect of Whistleblowing: An Event Study of Leaked Customer Information from Banks in Tax Havens," CESifo Working Paper Series 6784, CESifo Group Munich.
    2. Ralph-C. Bayer & Roland Hodler & Paul A. Raschky & Anthony Strittmatter, 2018. "Expropriations, Property Confiscations and New Offshore Entities: Evidence from the Panama Papers," CESifo Working Paper Series 7328, CESifo Group Munich.
    3. Laila Ait Bihi Ouali, 2019. "Top Income Tax Evasion and Redistribution Preferences: Evidence from the Panama Papers," Working Papers halshs-01978131, HAL.
    4. L. S. Di Mauro & A. Pluchino & A. E. Biondo, 2018. "A Game of Tax Evasion: evidences from an agent-based model," Papers 1809.08146, arXiv.org.
    5. Bastani, Spencer & Waldenström, Daniel, 2018. "How Should Capital Be Taxed? Theory and Evidence from Sweden," IZA Discussion Papers 11475, Institute for the Study of Labor (IZA).
    6. Niels Johannesen & Tim B.M. Stolper, 2017. "The deterrence effect of whistleblowing," EPRU Working Paper Series 17-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    7. Boehl, Gregor & Fischer, Thomas, 2017. "Capital Taxation and Investment: Matching 100 Years of Wealth Inequality Dynamics," Working Papers 2017:8, Lund University, Department of Economics.
    8. repec:eee:pubeco:v:162:y:2018:i:c:p:89-100 is not listed on IDEAS
    9. repec:eee:pubeco:v:162:y:2018:i:c:p:63-77 is not listed on IDEAS
    10. repec:ces:ifodic:v:16:y:2018:i:2:p:50000000002754 is not listed on IDEAS
    11. Lin Yang, 2018. "The relationship between poverty and inequality: Resource constraint mechanisms," CASE Papers /212, Centre for Analysis of Social Exclusion, LSE.
    12. Lin Yang, 2018. "The net effect of housing-related costs and advantages on the relationship between inequality and poverty," CASE Papers /211, Centre for Analysis of Social Exclusion, LSE.
    13. Garbinti, Bertrand & Goupille-Lebret, Jonathan & Piketty, Thomas, 2018. "Income inequality in France, 1900–2014: Evidence from Distributional National Accounts (DINA)," Journal of Public Economics, Elsevier, vol. 162(C), pages 63-77.
    14. repec:bla:worlde:v:41:y:2018:i:9:p:2491-2527 is not listed on IDEAS
    15. Florian Dorn & Christoph Schinke, 2018. "Top income shares in OECD countries: The role of government ideology and globalisation," The World Economy, Wiley Blackwell, vol. 41(9), pages 2491-2527, September.
    16. repec:eee:dyncon:v:87:y:2018:i:c:p:152-172 is not listed on IDEAS
    17. Sala, Hector, 2018. "A Fresh Look at Fiscal Redistribution and Inequality in the US across Electoral Cycles," IZA Discussion Papers 11839, Institute for the Study of Labor (IZA).
    18. Alstadsæter, Annette & Johannesen, Niels & Zucman, Gabriel, 2018. "Who owns the wealth in tax havens? Macro evidence and implications for global inequality," Journal of Public Economics, Elsevier, vol. 162(C), pages 89-100.
    19. Ozili, Peterson, 2018. "Tax Evasion and Financial Instability," MPRA Paper 88430, University Library of Munich, Germany.
    20. Alexander Krenek & Margit Schratzenstaller, 2018. "A European Net Wealth Tax," WIFO Working Papers 561, WIFO.
    21. Katrine Jakobsen & Kristian Jakobsen & Henrik Kleven & Gabriel Zucman, 2018. "Wealth Taxation and Wealth Accumulation: Theory and Evidence from Denmark," NBER Working Papers 24371, National Bureau of Economic Research, Inc.
    22. Orsetta Causa & Anna Vindics & Oguzhan Akgun, 2018. "An empirical investigation on the drivers of income redistribution across OECD countries," OECD Economics Department Working Papers 1488, OECD Publishing.
    23. repec:eee:gamebe:v:107:y:2018:i:c:p:123-134 is not listed on IDEAS
    24. repec:gam:jlawss:v:7:y:2018:i:3:p:31-:d:165334 is not listed on IDEAS

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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