Pinpointing the inequality between rich and poor is notoriously difficult because the data is so squishy, and new research shows just how hard that job can be.
The study is the first of its kind to quantify tax avoidance by nation. It kicks off this week’s economic research roundup, and is followed by a look at the decline in innovative ideas, another on the trajectory for pricing power, and a final piece on inflation and wages in the U.S. and Europe.
Who Skips Out on Taxes
One-tenth of the world’s total wealth is held in offshore tax havens, but that share jumps to as much of 15% for Europe and as much as 60% for Gulf and some Latin American countries, new research shows.
When it comes to total offshore wealth as a share of GDP, the United Arab Emirates, Venezuela, Saudi Arabia, Russia and Argentina lead the pack, while Germany, the U.K. and France all have above-average holdings. The U.S. is slightly below average.
There are a few factors that are closely associated with a high share of offshore wealth-to-GDP – proximity to Switzerland, the presence of national resources, and political and economic instability. That could be why the U.S. is slightly below the average, said economist Gabriel Zucman, one of the authors.
Offshore wealth boosts inequality when it’s factored into tax data, because it belongs mostly to the richest households. In the U.K., Spain, and France, about 30% to 40% of the wealth of the richest 0.01% of households is held abroad. Russia’s richest hold as much as 60% of their wealth overseas.
“The way that we measure inequality in economics, and the social sciences, is that we rely a lot on tax data,” Zucman said. “There’s the obvious problem that there is tax avoidance: if you only look at tax data there is risk that you’re going to underestimate the true concentration of wealth.”
Also worth noting: Hong Kong is rising as a destination for overseas cash, probably thanks to the rise of the super-rich in China and increased international pressure on more storied tax havens, like Switzerland.
Good Idea Hard to Find
Moore’s law – the idea that the number of transitors packed onto a computer chip doubles every two years – is getting harder to bring to fruition: it takes 18 times as many researchers to generate that change today as in 1970.