“Tax Evasion and Tax Avoidance” (with Annette Alstadsaeter, Niels Johannesen and Gabriel Zucman), Journal of Public Economics (2022)
Exploiting rich administrative data and salient policy variation, we study the substitution between illegal tax evasion and legal tax avoidance. By increasing its enforcement effort, the Norwegian government pushed many wealthy individuals to disclose assets pre- viously hidden abroad. We find that the taxes paid by these individuals rise 30% at the time of disclosure and that the rise is sustained over time. After stopping to evade, taxpayers do not start avoiding more. Our results suggest that cracking down on evasion by the wealthy can be an effective way to raise tax revenue, increase tax progressivity, and ultimately reduce inequality.
“Wealth Taxation and Portfolio Allocation”
The desirability of taxing household wealth has been at the forefront of global tax policy debates. A concern about wealth taxes is that they may discourage investment in productive capital, in contrast to property taxes focused on real estate. This paper investigates how wealth taxation affects households' portfolio choices. Leveraging a major wealth tax reform introduced in 2017 that transformed the French wealth tax into a real estate tax, I estimate the degree of substitution between real estate and financial wealth. To identify causal effects, I use comprehensive administrative-linked income and wealth microdata for France and a difference-in-differences design comparing French residents to non-French residents subject to the wealth tax but not affected by the policy change. Five years after the reform, the stock of real estate held by French taxpayers decreased by an average of 6%, with little variation along the wealth distribution. This decrease in real estate is driven by investment rather than owner-occupied housing and is mirrored by a surge in dividend income, consistent with taxpayers reshuffling by selling investment properties in order to invest in stocks. The reduced-form estimates can be converted into a cross-elasticity of 5: a 1 percentage point increase in the tax rate differential between real estate and financial assets leads to a 5% reallocation of households' housing stock to financial assets. Overall, the response is relatively modest, which suggests that property taxes are a poor corrective tool to foster investment in financial assets.
“Avoiding Transparency through Offshore Real Estate: Evidence from the UK” (with Jeanne Bomare)
Latest version, Sciences Po WP, EU Tax Observatory WP
Young Researcher Award, European Union Tax Observatory
This paper provides evidence of the growing importance of real estate assets in offshore portfolios. We study offshore real estate investments in the UK using administrative data on real estate purchases made by foreign companies. First, we show that this market is large and highly secretive: around 5% of total UK real estate wealth was held from abroad in 2018, mostly through tax havens. We match administrative records to corporate registers and leaks to shed light on the ultimate ownership of properties, and find that most offshore investments to the UK can be traced back to individuals from the UK and from the Middle East. Second, we study the implementation of the first multilateral automatic exchange of information norm, the Common Reporting Standard (CRS), which introduces cross-border reporting requirements for financial assets but not for real estate assets. We show that tax havens that are more exposed to the CRS significantly increased their real estate investments to the UK after the introduction of the policy. We estimate that around $45 billion has been invested in the UK real estate market between 2013 and 2016 in reaction to the CRS. This indicates that at a global scale, a substantial portion of wealth that flowed out of tax havens following the policy change was ultimately invested in properties.
“Push and Pull Factors of Offshore Tax Evasion: Evidence from Bank Transfer Data” (with Annette Alstadsaeter, Niels Johannesen and Gabriel Zucman)
This paper combines Norwegian administrative tax returns with international bank transfer data in order to study the push and pull factors of capital flight to tax haven jurisdictions. Focusing on taxpayers transferring large funds to tax havens, we document that these big transfers lead to a subsequent drop in tax payments and effectively predict later participation in a tax amnesty program.Then, we study the impact of both the level of taxes and the degree of tax transparency on evasion decisions – as proxied by transfers to and from haven countries and find that both elements correlate with variations in tax non-compliance behaviors.
“Avoiding Evasion: Effects of the Automatic Exchange of Information” (with Eva Davoine and Wouter Leenders)
We study the effect of newly implemented international tax transparency measures on households compliance behavior. To do so, we match French administrative tax records to account-level information reported to the French tax authority by foreign banks through the Automatic Exchange of Information (AEoI). We find that in 2021 French taxpayers hold a substantial share of their financial wealth in foreign accounts, almost two thirds of which is concentrated in a few financial centers, mainly Luxembourg and Switzerland. We also document a steep income gradient in the propensity to hold assets in foreign financial institutions. Turning to the impact of the AEoI on tax compliance and government revenue, we present suggestive evidence that the recent improvement in global tax transparency is likely to have reduced overall tax evasion and increased government revenue.