Considering Tax Havens Makes Inequality Look Worse

According to a new study, the super rich have been found to have the equivalent of 10% of world GDP (over $7 trillion) in tax havens that are often hidden offshore. With the consideration of these facts, economic inequality is actually worse than what a lot of the standard reporting suggests.

The Panama Papers and other major leaks from offshore tax havens have helped shed light on just how much money the world’s wealthiest individuals are parking in untaxed obscurity, away from the authorities and, importantly, economic researchers.

This new evidence has helped economists gain greater insight into just how steep disparities between the rich and poor have become, because having actual data on offshore holdings tends to widen wealth gaps considerably.

Three of these researchers have teamed up on two important papers that offer a more in-depth look at what the world’s worst tax-evading and -avoiding nations are, and find that the existence of tax havens makes inequality much worse than it appears with standard, publicly-available economic data.


“Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore,” the authors write.

Around 60% of the wealth of Russia’s richest households is held offshore, the economists estimate.

Tax Haven Evasion

“More broadly, offshore wealth is likely to have major implications for the concentration of wealth in many of the world’s developing countries, hence for the world distribution of income and wealth.”

“These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world,” they continue.


All the hidden cash means the problem of global income inequality within nations, already seen at critical and historical levels, is actually significantly more acute.

“Wealth concentration at the very top appears to have returned to its level of the 1950s, with a U-shaped evolution from the 1950s to today,” the authors write in the second new paper.

“Despite the more prevalent use of tax havens by continental European countries, we find that wealth is much more concentrated in the United States. In fact, the top 0.01% wealth share in the U.S. is as high as in early 20th century Europe.” (For the history fans, that’s before most of the continent was democratic, and right before two world wars. US inequality is now around the same levels where it stood during the Great Depression.)

U.S. & E.U. Inequality

But European inequality has worsened substantially as well, despite more ample social safety nets and worker-friendly regulations. That’s true even in countries seen as bastions of equality and generous social policy, like Sweden and Norway.

“When including offshore assets, we find that Scandinavia and other European countries have experienced very similar trends in wealth concentration at the top over the twentieth century,” the authors say. “We find that tax evasion rises sharply with wealth, a phenomenon random audits fail to capture.”