American Economic Review 2019, 109(6): 2073–2103 https://doi.org/10.1257/aer.20172043
Tax Evasion and Inequality† By Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman* Drawing on a unique dataset of leaked customer lists from offshore financial institutions matched to administrative wealth records in Scandinavia, we show that offshore tax evasion is highly concentrated among the rich. The skewed distribution of offshore wealth implies high rates of tax evasion at the top: we find that the 0.01 percent richest households evade about 25 percent of their taxes. By contrast, tax evasion detected in stratified random tax audits is less than 5 percent throughout the distribution. Top wealth shares increase substantially when accounting for unreported assets, highlighting the importance of factoring in tax evasion to properly measure inequality. (JEL D31, H24, H26, K34) The size and distribution of tax evasion is a source of sustained interest and controversy among the public. Some believe that the bulk of tax evasion is done by the wealthy, a view fueled recently by high-profile leaks from offshore financial institutions such as the “Panama Papers.” Others stress that poorer individuals may be more likely to evade taxes, highlighting fraud by the self-employed or abuse of refundable tax credits. Who evades taxes, and how much, matters for both economists and policymakers. First, and most importantly, it matters for the study of inequality. Over the last 15 years, scholars have increasingly relied on tax data to study distributional issues, especially trends in top income and wealth shares (see Roine and Waldenström 2015, for a recent survey). Tax returns are the best available data source to study the top-end of the distribution, because they do not, contrary to surveys, suffer from sampling errors: everybody above a certain income level has to file a return. But they * Alstadsæter: Norwegian University of Life Sciences, School of Economics and Business, Christian Magnus Falsens vei 18, 1433 Ås, Norway (email: annette.alstadsater@nmbu.no); Johannesen: Department of Economics and CEBI, University of Copenhagen, Øster Farimagsgade 5, 1353 Copenhagen, Denmark (email: niels.johannesen@ econ.ku.dk); Zucman: University of California, Berkeley, 530 Evans Hall #3880, Berkeley, CA 94720, and NBER (email: zucman@berkeley.edu). Thomas Lemieux was the coeditor for this article. We thank the Scandinavian tax administrations (Skatteetaten, Skatteverket, and SKAT), Statistics Sweden, and SVT Uppdrag granskning for their goodwill and cooperation; Sigurd Bjørnestad, Joachim Dyfvermark, Linda Larsson Kakuli, Fredrik Laurin, Petter Lundberg, Søren Pedersen, Gard Thomassen, and UiO Services for Sensitive Data (TSD) for exceptionally valuable assistance; Alan Auerbach, Brooke Harrington, Send Jonas, Patrick Kline, Adair Morse, Daniel Reck, Emmanuel Saez, Joel Slemrod, Daniel Waldenstrøm, and numerous seminar and conference participants for helpful comments and reactions. We are grateful for financial support from the Nordic Tax Research Council and the FRIPRO-program of the Research Council of Norway. Johannesen gratefully acknowledges financial support from the Danish Council for Independent Research and the Danish National Research Foundation. Zucman gratefully acknowledges financial support from the Laura and John Arnold Foundation. † Go to https://doi.org/10.1257/aer.20172043 to visit the article page for additional materials and author disclosure statements. 2073