Tax Evasion and Tax Avoidance – A Multi-Trillion-Dollar Business

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The topic of income and wealth inequality is closely linked to the practice of tax avoidance and evasion, both by international corporations and by wealthy individuals. For example, it is often argued that an increase in top-income taxes and capital taxes intended to mitigate economic inequality will only end up scaring off investors and high-skilled workers or encouraging them to circumvent the law and ultimately hurting national prosperity. The related difficulties of implementing national policies in a globalised world have been highlighted by the recent disclosures of the Panama Papers and the European Comission’s decision to hit Apple with a tax bill of €13 billion after years of paying an effective corporate tax below one percent due to a deal with the Irish government. Unfortunately, any discussion about tax avoidance and evasion is seriously constrained by the opacity of tax havens and the global financial system and its laws and the lack of robust data. Recent research may help to shed some light on the issue at hand. But while there has been made some progress on the international level recently, it remains highly doubtful whether the gigantic globalised financial shadow economy can be tamed. Continue reading “Tax Evasion and Tax Avoidance – A Multi-Trillion-Dollar Business”

Daydreaming About Inequality – A New Income Tax System

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This article reflects my personal opinion.

The taxation of income often becomes a controversial issue in election debates (given that those debates actually revolve around factual topics). However, the proposals put forth mostly concern new regulations, new special rules, exceptions and deductions and small rate hikes or cuts and often are nothing more than half-hearted gifts to certain interest groups. In the long run, this leads to a progressively complex tax system that, combined with a similarly proliferating social welfare system, results in a bureaucratic leviathan that can paralyse a society and economy and at the same time fails to mitigate inequality. What if one started from scratch and intended to create an income tax system that is simple while being comprehensive and aims to mitigate growing income inequality and was not afraid of experimenting with somewhat unfamiliar ideas? In this article, I want to briefly explore a little thought experiment and imagine a new income tax system  (I will sometimes use Germany as reference case). Continue reading “Daydreaming About Inequality – A New Income Tax System”

Alive and Well: Income Inequality

International Top 1
Top one percent income shares of total national income for ten countries, before taxes and excluding capital gains (%, interpolated for missing values); data source: Alvaredo et al. (2016)

In recent years, economic inequality has become one of the most dominant topics in the public debate in various countries and is seen by many as one of the driving factors behind increasing political polarisation. It has also spurred academic discussion, at the latest since the publication of Thomas Piketty’s groundbreaking book “Capital in the 21st Century” in 2014. Economic inequality is often intertwined with social, racial or gender inequality and can be further broken down into income and wealth inequality, with both categories again being closely connected. And while there is a lot of work being done on investigating wealth distribution and inequality, e.g. by Saez and Zucman (2014) on the US, currently, our understanding of income distribution is more evolved. A lot of data has been gathered in recent years by Alvaredo et al. (2016) that makes it possible to take a look at the development of income inequality in various countries and helps to understand its possible drivers and consequences. Continue reading “Alive and Well: Income Inequality”