Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258894 
Year of Publication: 
2017
Series/Report no.: 
CEBI Working Paper Series No. 03/17
Publisher: 
University of Copenhagen, Department of Economics, Center for Economic Behavior and Inequality (CEBI), Copenhagen
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")atched 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.
Subjects: 
tax evasion
inequality
tax havens
tax gap
tax amnesties
JEL: 
E21
H26
Document Type: 
Working Paper

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