Two academics, Niels Johannesen and Gabriel Zucman (see CVs below) wrote an interesting analysis of their theory of what is happening to capital of individuals worldwide since the financial crises. The paper can be reviewed here.
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By Niels Johannesen and Gabriel Zucman*
(Feb. 2014)
- During the financial crisis, G20 countries compelled tax havens to sign bilateral treaties providing for exchange of bank information. Policymakers have celebrated this global initiative as the end of bank secrecy. Exploiting a unique panel dataset, our study is the first attempt to assess how the treaties affected bank deposits in tax havens. Rather than repatriating funds, our results suggest that tax evaders shifted deposits to havens not covered by a treaty with their home country. The crackdown thus caused a relocation of deposits at the benefit of the least compliant havens. We discuss the policy implications of these findings. (JEL G21, G28, H26, H87, K34)
The crux of their analysis, in my view, can be summed up best in their own words:
- During the financial crisis, the fight against tax evasion became a political priority in rich countries and the pressure on tax havens mounted. At the summit held in April 2009, G20 countries urged each tax haven to sign at least 12 information exchange treaties under the threat of economic sanctions. Between the summit and the end of 2009, the world’s tax havens signed a total of more than 300 treaties.
- The effectiveness of this crackdown on offshore tax evasion is highly contested. A positive view asserts that treaties significantly raise the probability of detecting tax evasion and greatly improve tax collection (Organisation for Economic Co-operation and Development 2011). According to policy makers, “the era of bank secrecy is over” (G20 2009). A negative view, on the contrary, asserts that the G20 initiative leaves considerable scope for bank secrecy and brings negligible benefits (Shaxson and Christensen 2011). Whether the positive or the negative view is closer to reality is the question we attempt to address in this paper.
* Johannesen: Department of Economics, University of Copenhagen, Øster Farimagsgade 5, 1353 Copenhagen, Denmark (e-mail: niels.johannesen@econ.ku.dk); Zucman: University of California, Berkeley, 530 Evans Hall
#3880, Berkeley, CA 94720, and London School of Economics, 32 Lincoln’s Inn Fields, London WC2A 2AE
(e-mail: zucman@berkeley.edu).