Title: Cracking Down on Tax Evasion in Norway: Substitution between Illegitimate and Legal Tax Avoidance

Authors: Annette Alstadsæter (Norwegian University of Life Sciences) Niels Johannesen (University of Copenhagen, CEBI and CEPR) Ségal Le Guern Herry (Sciences Po Paris) Gabriel Zucman (UC Berkeley and NBER)

Date: November 7, 2021

Introduction

A recent study published in the journal “Taxes and Public Finances” provides new insights into the substitution between tax evasion and legal tax avoidance, focusing on Norway’s voluntary disclosure scheme, or the “amnesty.” The researchers analyzed data from the Norwegian tax administration and other administrative sources to understand the implications of this policy.

Enhanced Enforcement Mechanisms and the Response from Taxpayers

The authors found that participation in the amnesty significantly increased after the Norwegian government stepped up its efforts to crack down on tax evasion. This led to around 1,500 individuals disclosing previously undeclared foreign assets and income between 2008 and 2016. Despite the absence of penalties for those who made full and voluntary disclosures, many wealthy Norwegians responded by voluntarily disclosing their hidden assets.

Findings: Weaker Substitution between Tax Evasion and Avoidance

The researchers compared the behavior of those who disclosed with a control group of other taxpayers who hadn’t used the amnesty. They primarily focused on changes in reported net wealth, income, and taxes paid around disclosures.

Key Findings:

1. No evidence of perfect substitution between tax evasion and avoidance.
2. Those who disclosed showed a significant increase in reported net wealth and income, along with a corresponding rise in taxes paid.
3. These changes were sustained throughout the four-year period following their participation in the amnesty.

Investigating Tax Avoidance among Disclosers

To investigate tax avoidance among disclosers, the researchers considered several tax-avoidance techniques that wealthy Norwegians could adopt to reduce their tax burden, such as deferring capital income taxes or investing in unlisted shares or real estate with lower taxation rates. However, they found no evidence of increased tax avoidance among those who disclosed assets under the amnesty.

Conclusion

The study’s findings highlight weaker substitution between tax evasion and avoidance, which could allow authorities to effectively boost tax collection by cracking down on evasion. These insights could have significant implications for tax policy in countries where tax evasion is widespread and taxpayers have numerous tax avoidance opportunities.

Note: This analysis is based on the available data and has certain limitations. The research contributes to the broader understanding of tax avoidance behavior and its interaction with tax evasion in the context of ongoing debates on tax fairness and inequality.