Tax Evasion and Inequality

Annette Alstadsæter, Niels Johannesen and Gabriel Zucman

No 23772, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E21 H26 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-eec, nep-iue, nep-mac, nep-pbe and nep-pub
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Published as Annette Alstadsæter & Niels Johannesen & Gabriel Zucman, 2019. "Tax Evasion and Inequality," American Economic Review, vol 109(6), pages 2073-2103.

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Journal Article: Tax Evasion and Inequality (2019)
Working Paper: Tax Evasion and Inequality (2018)
Working Paper: Tax Evasion and Inequality (2018)
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