Switzerland, which developed cross-border wealth-management in the 1920s, once was in a league of its own as a tax haven. Since the 1980s, however, tax-dodgers have had a rich menu to choose from: They can hide assets anywhere from the Bahamas to Hong Kong. The percentage of global wealth held offshore has increased dramatically—but it has been hard to say how much that is, and who owns it.
Few offshore centers used to disclose such data. In 2016, however, many authorized the Bank for International Settlements to make banking statistics publicly available. Using these data, a new study by economists Annette Alstadsaeter, Niels Johannesen and Gabriel Zucman concludes that tax havens hoard wealth equivalent to about 10 percent of global GDP.
This average masks big variations: Russian assets worth 50 percent of GDP are held offshore. Countries such as Venezuela, Saudi Arabia and the United Arab Emirates climb into the 60 percent-to-70 percent range. Britain and continental Europe come in at 15 percent, but Scandinavia at only a few percent.
One conclusion is that high tax rates, like those in Denmark or Sweden, do not drive people offshore. Rather, higher offshore wealth is correlated with factors such as political and economic instability and an abundance of natural resources.
Proximity to Switzerland also remains a good indicator. Assets held there have declined since the financial crisis, however, whereas those in Hong Kong grew sixfold between 2007 and 2015. The Chinese territory now ranks second behind Switzerland. Zucman attributed this to foreign pressure on Swiss banks following recent scandals, coupled with a surge of wealth in Asia.
Accounting for offshore holdings suggests that wealth inequality is even greater than had been thought. In Britain, France and Spain the top 0.01 percent of households stash between 30 percent and 40 percent of their wealth in tax havens. In Russia most of it goes there. In America the share of wealth held by the richest 0.01 percent is as high today as in early-20th-century Europe. Including offshore data increases the wealth share of the super-rich.
Plenty of data are still missing, however. A few big centers, including Panama and Singapore, still do not disclose these statistics. The BIS data also cover only bank deposits, not the securities in which most offshore wealth is held. Researchers made estimates to plug the gap, but their figures are likely to be conservative.
© 2017 Economist Newspaper Ltd., London (October 7). All rights reserved. Reprinted without permission.