Macroeconomic effects of banking secrecy when tax evasion is endogenous

Frode Brevik (frode.brevik@unisg.ch) and Manfred Gärtner (manfred.gaertner@unisg.ch)

University of St. Gallen Department of Economics working paper series 2006 from Department of Economics, University of St. Gallen

Abstract: We analyze a multi-country model in which a small group of countries adopts banking secrecy (BS) laws and a withholding tax. The other group doesn't. BS countries benefit in all relevant macroeconomic variables, including taxes and the provision of public goods. In non- BS countries most of the same variables deteriorate - when tax evasion is exogenous or its tax elasticity is moderate. When this elasticity is high, BS may drive these countries' tax rates down also, and income, consumption and wealth may rise. However, public-goods provision always deteriorates and welfare falls. We also argue that this case does not appear to be relevant empirically.

Keywords: Banking secrecy; tax evasion; withholding tax; welfare effects (search for similar items in EconPapers)
JEL-codes: E2 E62 F42 H2 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2006-05
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac, nep-pbe and nep-reg
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