Title: Taxing Capital in a Globalized World: The Effects of Automatic Information Exchange
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 increases in tax compliance along all these margins, with the largest response coming from repatriation of wealth. Overall we estimate that the automatic exchange of bank information has caused a decline in the offshore tax gap of about 70% relative to a counterfactual with no policy change. These results highlight the power of international cooperation to improve tax compliance in a globalized world.
Sir Clive Granger BuildingUniversity of NottinghamUniversity Park Nottingham, NG7 2RD