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Macroeconomic effects of banking secrecy when tax evasion is endogenous

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  • Frode Brevik

    ()

  • Manfred Gärtner

    ()

Abstract

We analyze a multi-country model in which a small group of countries adopts banking secrecy (BS) laws and a withholding tax. The other group doesn't. BS countries benefit in all relevant macroeconomic variables, including taxes and the provision of public goods. In non- BS countries most of the same variables deteriorate - when tax evasion is exogenous or its tax elasticity is moderate. When this elasticity is high, BS may drive these countries' tax rates down also, and income, consumption and wealth may rise. However, public-goods provision always deteriorates and welfare falls. We also argue that this case does not appear to be relevant empirically.

Suggested Citation

  • Frode Brevik & Manfred Gärtner, 2006. "Macroeconomic effects of banking secrecy when tax evasion is endogenous," University of St. Gallen Department of Economics working paper series 2006 2006-10, Department of Economics, University of St. Gallen.
  • Handle: RePEc:usg:dp2006:2006-10
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/dp2006/DP10_Ga.pdf
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    References listed on IDEAS

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    1. Wolfgang Eggert & Martin Kolmar, 2004. "The Taxation of Financial Capital under Asymmetric Information and the Tax-competition Paradox," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 83-106, March.
    2. Ellen R. McGrattan & Edward C. Prescott, 2003. "Average Debt and Equity Returns: Puzzling?," American Economic Review, American Economic Association, vol. 93(2), pages 392-397, May.
    3. Frode Brevik & Manfred Gärtner, 2005. "Welfare and Distribution Effects of Bank Secrecy Laws," University of St. Gallen Department of Economics working paper series 2005 2005-07, Department of Economics, University of St. Gallen.
    4. Kollintzas, T. & Philippopoulos, A. & Vasillatos, V., 1999. "Is Tax Policy Coordination Necessary?," Athens University of Economics and Business 110, Athens University of Economics and Business, Department of International and European Economic Studies.
    5. Huizinga, Harry & Nicodeme, Gaetan, 2004. "Are international deposits tax-driven," Journal of Public Economics, Elsevier, vol. 88(6), pages 1093-1118, June.
    6. Bacchetta, Philippe & Espinosa, Maria Paz, 1995. "Information sharing and tax competition among governments," Journal of International Economics, Elsevier, vol. 39(1-2), pages 103-121, August.
    7. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Banking secrecy; tax evasion; withholding tax; welfare effects;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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