Working Paper: NBER ID: w31055
Authors: Niels Johannesen; Daniel Reck; Max Risch; Joel Slemrod; John Guyton; Patrick Langetieg
Abstract: This paper uses account-level information, reported to the IRS by foreign financial institutions under the Foreign Account Tax Compliance Act (FATCA), to produce new evidence on the foreign financial wealth of U.S. households. We find that U.S. taxpayers hold around $4 trillion in foreign accounts, almost half in jurisdictions usually considered tax havens. Combining the FATCA reports with other administrative tax data and tracing account ownership through partnerships, we document a steep income gradient in the propensity to hold assets in foreign financial institutions. Specifically, more than 60% of the individuals in the top 0.01% of the income distribution own foreign accounts, the vast majority in tax havens and more than half through a partnership. We discuss the likely implications of these findings for the overall impact of FATCA on tax compliance and government revenue.
Keywords: FATCA; foreign accounts; tax compliance; offshore wealth; income distribution
JEL Codes: H24; H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FATCA (H26) | increased reporting of foreign financial accounts by FFIs (F38) |
| increased reporting of foreign financial accounts by FFIs (F38) | reduced tax evasion (H26) |
| FATCA (H26) | distribution of foreign wealth across different income groups (D31) |
| FATCA (H26) | compliance response of individuals maintaining offshore accounts (H26) |
| compliance response of individuals maintaining offshore accounts (H26) | overall effectiveness of FATCA in enhancing tax compliance (H26) |
| higher income individuals (D31) | likelihood of owning accounts in tax havens (H26) |