Hiding financial wealth: The role of tax havens


Although there is no universally accepted definition of tax havens/special tax jurisdictions, they share at least three common features:

(a) low or zero taxation of interests earned by foreign depositors;

(b) easiness of legal incorporation of commercial companies;

(c) legally-protected secrecy.

Tax havens are special constructions of sovereign states and small jurisdictions created to attract foreign capital. The economic benefits of these legal devices include the additional financial resources that can flow from abroad and that, in turn, can be invested in the recipient countries; profit-opportunities for domestic banks; and increased tax revenues for the government (although obtained in indirect ways). In contrast, the origin countries of these funds can see their tax base eroded and have less resources available to support domestic investment and economic development.

The locations of tax havens can be traced to three geopolitical poles, reflecting various financial practices of old empires and hegemonic nations:

(i) The British pole including the City of London, British Crown Dependencies, Overseas Territories and former colonies;

(ii) The European pole comprising tax havens created by continental European countries;

(iii) The American pole with special tax jurisdictions in the sphere of the Americas and, particularly, in some states of the US.

Other classifications are also possible, particularly to denote the increasing importance of Asian tax havens.

The British pole includes a variety of tax havens such as Jersey Island, the Isle of Man, the Cayman Islands, the British Virgin Islands and former protectorates and colonies such as Hong Kong, Singapore, the Bahamas, Bahrain and the city-state of Dubai. The European pole includes Switzerland, Ireland, the Benelux countries (Belgium, the Netherlands, and Luxembourg) and Liechtenstein. The American pole includes states such as Delaware and New Jersey and the most distant Panama and Uruguay. This international network of special tax jurisdictions has grown in recent decades in line with the increasing accumulation of wealth by small elite groups of people seeking escape from national taxation, the improvements in the technology for electronic transfers of funds, and the growing size of global capital markets.

  1. Resources involved

It is estimated that, in 2001-2015, on average, around 10% of global GDP was maintained offshore as personal wealth in special tax jurisdictions.[1] Other estimates from the Boston Consulting Group show a share that is two to three percentage points higher than the one provided by Alstadsaeter, Johannesen, and Zucman, (AJZ, 2017a, figure 1). In turn, the National Bank of Switzerland shows a decreasing proportion of offshore wealth being held in Swiss financial institutions (a main offshore financial center) starting around 2007. In total monetary value, and as a share of global GDP, the total value of offshore wealth has been steadily rising between 2005 and 2015, see table 1.

Hiding financial wealth: The role of tax havens 1

Source: AJZ (‘Our Estimate’, 2017a), Boston Consulting Group (2017) and Swiss National Bank.

Hiding financial wealth: The role of tax havens 2

Source: Own elaboration based on, Statistical Appendix, AJZ (2017a, online). BCG = Boston Consulting Group.

This money largely escapes taxation in the countries of origin as a large proportion of it is undisclosed; on the other hand, these flows hugely enrich the deposits received by commercial banks in tax havens, providing additional financial resources to recipient countries and other benefits already mentioned. A study of the cases of Norway, Sweden, and Denmark (ADZ, 2017b) examined the degree of no disclosure to the national tax authorities of funds held offshore.[2] An important finding of this research is that the average rate of tax evasion rises sharply with the wealth level of those placing assets abroad.[3]

  1. Changing importance of regional tax havens

Historically, Switzerland has been the main supplier of cross–border wealth management services starting in the 1920s. In the 1930s and 1940s, the Swiss took advantage of their neutrality in the Second World War to receive large deposits from wealthy Europeans from aggressor countries, including money coming from Nazi Germany. In 2005 (before the financial crisis of 2007-08), Switzerland held 46% of global offshore wealth but this share declined to around 26% in 2015 (table 1). The decline in the importance of Switzerland and other European tax havens was matched by an increase in the relative share of American and Asian special tax jurisdictions between 2005 and 2015. In 2015, the Cayman Islands accounted for 7.9% of world offshore wealth, followed by the US (7.5%) and Panama (1.6%). The main recipient of offshore wealth in that year was Hong Kong, representing 16.5% of the world total (mostly from mainland China) followed by Singapore (10%). Among the special tax jurisdictions in the British and European poles, we find the UK (8.9%) followed, closely, by Luxembourg (8.3%) in 2015.


Hiding financial wealth: The role of tax havens 3


Figure 2, below, shows a significant dispersion in the ratios of offshore personal wealth across countries with different development levels and macroeconomic characteristics. The ratio varies from 2–4 percentage points of GDP in Korea, Sweden, Norway, Denmark, Japan, and China to around 35% in Greece and Argentina and up to 40 to 70% in Russia, Saudi Arabia, Venezuela, and the United Arab Emirates.[5] Countries with a long history of financial crises such as Argentina, Venezuela, Greece, and Russia have higher percentages of offshore personal wealth relative to their GDP than nations with more stable macroeconomic structures. This underscores the fact that macro-financial volatility deters national investment and encourages capital flight to more financially secure locations (Popov, 2015; Solimano, 2017).

Hiding financial wealth: The role of tax havens 4

Figure 2: Offshore personal wealth for selected countries (percentage of GDP)

Source: AJZ (2017a).

Finally, it is important to note the existence of regional biases in the choice of tax havens for individuals wanting to place their wealth abroad. In the Americas, special tax jurisdictions in places such as the Virgin Islands, the US, and Panama receive an important proportion of wealth from residents in the Americas. In turn, the French, Belgians, and Portuguese hold part of their offshore wealth mainly in Switzerland and Luxembourg and wealthy Russians prefer Switzerland and Cyprus. In turn, wealthy Asians tend to prefer Singapore, Hong Kong, Macao, and Jersey Island (a British territory) as places to park their financial assets.



Alstadsaeter, A., N. Johannesen and G. Zucman (AJZ, 2017a). Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality. NBER Working Paper 23805.

Alstadsaeter, A., N. Johannesen and G. Zucman (AJZ, 2017b). Tax Evasion and Inequality. NBER Working Paper 23772.

BCG (2017). Special Reports, Boston Consulting Group.

Novokmet, F., T. Piketty and G. Zucman (2017). From Soviets to Oligarchs: Inequality and Property in Russia 1905-2016. WID.world Working paper series 2017.

Popov, V. (2015). Mixed Fortunes, An Economic History of Russia and China. Oxford, New York: Oxford University Press.

Solimano, A. (2017). Global Capitalism in Disarray. Inequality, Debt and Austerity. Oxford, New York: Oxford University Press.

Solimano, A. (2018). The International Mobility of the Wealthy: Push and Pull Factors. DOC-RI.

Zucman, G. (2013). The Missing Wealth of Nations: Are Europe and The U.S. Net Debtors or Net Creditors? Quarterly Journal of Economics, 128(3), pp. 1321-64.


[1] See Alstadsaeter, Johannesen and Zucman, (AJZ, 2017a). Zucman (2013) provided an earlier estimate of “hidden wealth” in fiscal paradises that was updated in AJZ (2017a).

[2] The  offshore wealth to GDP ratio in these countries is between 2-4 percent, well below the world average (see figure 2 in the text).

[3]  The average personal tax evasion, for the three countries, is 3 percent, this percentage rises to 25-30 percent for the top 0.01 percent of the wealth distribution.

[4] Alstadsaeter, Johannesen and Zucman (2017a), Statistical Appendix.

[5] Russia is in this range when offshore wealth is estimated through the Net Errors and Omission (NEO) methodology, see Novokmet, Piketty and Zucman, (2017).

The views and opinions expressed in this publication are those of the original author(s) and do not necessarily represent or reflect the views and opinions of the Dialogue of Civilizations Research Institute, its co-founders, or its staff members.
Previous articleDOC Research Institute CEO to address Indian Student Parliament
Next articleDOC RI CEO addresses Indian Student Parliament
Andrés Solimano

Non-Resident Senior Research Fellow, United Nations University, GB

Non-Resident Senior Research Fellow, United Nations University. Andrés Solimano holds a PhD. in Economics from the Massachusetts Institute of Technology (MIT). He is the founder and chairman of the International Center for Globalization and Development (CIGLOB), formerly a Country Director at the World Bank, Executive Director at the Inter-American Development Bank, and directed the UNU-WIDER project ‘International Mobility of Talent’.His most recent books as sole author include: Global Capitalism at Disarray, Inequality, Debt and Austerity, Oxford University Press, 2017; Pensiones a la Chilena, Editorial Catalonia, 2017; Economic Elites, Crises and Democracy, Oxford University Press, 2014; International Migration in the Age of Crisis and Globalization, Cambridge University Press, 2010. He also edited International Mobility of Talent: Types, Causes and Development Impact, Oxford University Press, 2008.