Taxing Capital in a Globalized World: The Effects of Automatic Information Exchange

Hjalte Fejerskov Boas, Niels Johannesen, Claus Thustrup Kreiner, Lauge Larsen and Gabriel Zucman ()
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Hjalte Fejerskov Boas: UCPH - University of Copenhagen = Københavns Universitet
Niels Johannesen: UCPH - University of Copenhagen = Københavns Universitet, University of Oxford
Claus Thustrup Kreiner: UCPH - University of Copenhagen = Københavns Universitet
Lauge Larsen: UCPH - University of Copenhagen = Københavns Universitet
Gabriel Zucman: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UC Berkeley - University of California [Berkeley] - UC - University of California

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Abstract: In the second half of the 2010s more than 100 countries — including all large offshore financial centers — started to automatically exchange bank information with foreign tax authorities. This informational big-bang marks a break with the situation of offshore bank secrecy that prevailed before. We study its effects on tax compliance by analyzing the universe of information reports sent by foreign banks to Danish authorities, matched to population-wide micro-data on income, wealth, and cross-border bank transfers. In response to the automatic exchange of bank information, tax evaders may repatriate previously undeclared offshore wealth, they may start to self-report offshore income to the tax authorities, or the tax authorities may detect their evasion in audits that use the new information reports. Using a variety of research designs, we find large compliance effects along all these margins, with the largest response coming from repatriation of wealth. Overall we estimate that the automatic exchange of bank information has closed about 70% of the offshore tax gap. These results highlight the power of international cooperation to improve tax compliance: tax evasion is not a law of nature in a globalized world.

Date: 2024-07
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04940914v1
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