The gap between rich and poor could be even wider than current data shows, according to a group of researchers who analyzed two massive leaks targeting the financial affairs of the global elite.
The leaked data is significant enough to revise previous estimates of wealth inequality in the developed world, the researchers found. In Norway, one of the countries they focused on, the country's richest 300 families appear to keep a third of their wealth offshore, and previously uncounted in government data.
That alone suggests Norway's richest 0.1% hold at least 10% of the country's wealth, up from the 8% suggested by currently available data. Norway has high taxes — and thus high incentives to hide money from tax collectors — but is also responsible for a tiny percentage of total offshore wealth, and its example is likely to be replicated in other wealthy nations, the researchers wrote.
The economists based their findings on data leaked from the Swiss private banking operations of global bank HSBC, as well as the "Panama Papers" leak connected to law firm Mossack Fonseca, which specializes in helping the wealthy set up offshore financial holdings.
The three economists, Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman, matched up data from the two leaks with tax records in Norway, Sweden, and Denmark, which keep unusually detailed records of individual wealth and income. Across Scandinavia, they found that about 3% of all personal taxes are evaded, but that among the wealthiest .01% of households — those with more than $40 million in assets — the tax evasion rate shoots up to 30%.
The scale of such tax evasion, and the likelihood of it happening across the world, not just in Scandinavia, means global estimates of wealth inequality are likely underestimating just how rich the rich really are, the researchers concluded.
While some countries do regular audits to catch tax evasion, the most common tax-dodging caught in such checks is by small businesses and the self-employed. Offshore schemes, which are mainly used by the mega-rich, are less likely to be spotted.
About 10% of the world's offshore wealth, or $2.5 trillion, is held in Switzerland, Zucman has estimated. In studying Scandinavia's wealthiest 0.01% — 520 households — the researchers found 1% of them were using HSBC's Swiss private banking services alone.
The researchers found a similar trend after studying the shell companies created by Panamanian law firm Mossack Fonseca, and matching as many as possible to their ultimate owners. Over 1% of Scandinavia's wealthiest households owns a shell company created by Mossack Fonseca, they found.
Another data source used by the researchers came from Norway and Sweden's tax amnesty laws, which allow people to come clean on cash hidden away offshore in return for more lenient penalties. Over 8,000 people have done so since 2006. The amnesty data shows that 14% of the wealthiest households have stashed money abroad at some point — a number that rises to almost 15% when combined with the revelations from the HSBC leak.
The paper is part of a longer research project by a group of economists, including Thomas Piketty and Zucman's University of California colleague Emmanuel Saez, to more precisely understand how inequality has changed over time, especially in wealthy countries.
In 2014, Piketty's Capital in the Twenty-First Century made waves across the world for its analysis of rising wealth inequality in the developed world. Zucman's 2015 book, The Hidden Wealth of Nations, showed that a major portion of the world's wealth was stashed away in offshore banking centers, much of it undeclared to tax authorities. He also showed that the income of major corporations, especially in the US, had migrated overseas to avoid paying corporate taxes.
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at firstname.lastname@example.org.
Got a confidential tip? Submit it here.