With high levels of inequality and a rising share of capital income in total income, as Gabriel Zucman’s piece in this symposium pithily highlights, there are several reasons why tax authorities in developing countries should place a special focus on high-net-worth individuals (HNWIs). First, progressive tax system structures, combined with high levels of income concentration, mean that even a small increase in tax avoidance and evasion amongst the ultra-wealthy can lead to a substantial drop in overall tax revenue. Second, HNWIs tend to have highly complex tax arrangements, income and wealth scattered across the world, and access to tax planning experts, which facilitates tax avoidance and tax evasion. Research from Scandinavia and the US has found that, on a cost-weighted basis, tax evasion is concentrated at the top of the distribution. Finally, the integrity of the tax system as a whole is contingent on taxpayers believing that the ultra-wealthy pay their fair share in tax. Survey evidence3 has found that taxpayers at the bottom and middle of the distribution are more willing to pay tax when they are informed that the tax system is progressive, and less willing to pay tax when they are informed that the tax system is not progressive. Low- and middle-income countries have especially struggled in raising revenue from the rich, due to high levels of informality, high levels of self-employment amongst top earners, and low tax rates on capital gains and wealth transfers.


UK aid from the UK government via the Centre for Tax Analysis in Developing Countries (TaxDev) is gratefully acknowledged.