Tax Evasion and Inequality

CEBI Working Paper No. 03/17

56 Pages Posted: 2 Feb 2018

See all articles by Annette Alstadsæter

Annette Alstadsæter

School of Economics and Business, NMBU

Niels Johannesen

University of Copenhagen

Gabriel Zucman

UC Berkeley

Multiple version iconThere are 3 versions of this paper

Date Written: August 24, 2017

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.

Keywords: tax evasion, inequality, tax havens, tax gap, tax amnesties

JEL Classification: E21, H26

Suggested Citation

Alstadsaeter, Annette and Johannesen, Niels and Zucman, Gabriel, Tax Evasion and Inequality (August 24, 2017). CEBI Working Paper No. 03/17. Available at SSRN: https://ssrn.com/abstract=3109300 or http://dx.doi.org/10.2139/ssrn.3109300

Annette Alstadsaeter (Contact Author)

School of Economics and Business, NMBU ( email )

P.O. Box 5003
NO-1432 Aas
Norway

HOME PAGE: http://www.nmbu.no/emp/annette.alstadsater

Niels Johannesen

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Gabriel Zucman

UC Berkeley ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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