The Political Economy of Offshore Wealth: How Tax Flight Affects Taxation Preferences
P8-S195-1
Presented by: Iván Tubío Sanlés
Over the past decade, numerous offshore tax evasion scandals have emerged (e.g., Panama Papers). These cases have prompted significant public and policy debate on how to address tax flight, as well as increased research into the impact of offshore tax evasion on inequality. However, our understanding of the political consequences of tax flight is still very limited. In this article, I develop a theoretical framework that explains the effect of tax flight information on tax preferences. In particular, I argue that information regarding tax flight decreases individuals’ willingness to pay taxes and their support for overall tax levels, while increasing their demand for tax progressivity. To empirically assess my argument, I use both experimental evidence from an information-provision experiment conducted in the UK, and quasi-experimental evidence from an unexpected event during survey design (UESD) based on Norwegian survey data. I find that tax flight information significantly reduces individuals’ willingness to pay taxes, whereas it positively affects preferences for tax progressivity. However, the evidence on the relationship between tax flight and preferences over tax levels is mixed. The experimental results indicate that tax flight does not significantly impact individuals’ preferred tax levels, but that it has a negative influence on their overall perception of current taxes in the UK. Moreover, the quasi-experimental results suggest that tax flight scandals (i.e., the Pandora Papers) substantially decreased Norwegians’ demand for redistribution.
Keywords: Taxation preferences, tax compliance, redistribution preferences, survey experiment, UESD.