Global inequality much worse than previously thought, say economists

Official estimates of inequality only take into account the money that the tax man sees

The issue of wealth disparity has been highlighted by the Occupy Movement (Getty)

The gap between rich and poor across the globe is even wider than we currently think, according to a new analysis.

Official estimates of inequality only take into account the money that the tax man sees, according to a recent paper by economists, Annette Alstadsæter, Niels Johannesen and Gabriel Zucman.

But recent leaks of vast caches of documents from secretive jurisdictions such as Panama and Switzerland have given a more accurate picture of the sheer scale of global tax evasion - most of it carried out by very wealthy people.

The three economists have used this trove of data to make a new assessment of the true wealth of the planet’s richest people, and thus a potentially more accurate measure of just how much richer they are than those at the bottom.

Until now, most assessments of wealth have relied on random tax audits, which do not pick up hidden offshore assets.

This would not impact measurements global inequality if the poor dodged paying their dues as much as the rich did. In fact the rich evade many multiples more than the poor, according to Alstadsæter, Johannesen and Zucman.

They studied three sets of documents: the Panama Papers, leaked from a Central American law firm which helped people set up tax haven companies; the Swiss Leaks, which revealed the dealings of HSBC’s Swiss subsidiary; and Scandinavian tax records, which give an unusually detailed picture of the income of citizens of that region.

By combining the data sets they were able to make an estimate of the true size and scope of tax evasion, and thus inequality.

They found the wealthiest 0.01 per cent in Norway, Sweden and Denmark evaded 30 per cent of their personal taxes on average, compared to just 3 per cent in the total population.

In Norway, which has particularly detailed data, the super-rich, ie the top 0.1 per cent of the wealth pyramid, are 30 per cent wealthier than previously thought, when their hidden offshore assets are taken into account. This means they actually own 10 per cent of all wealth, not the 8 per cent previously thought.

The authors posit that the scale of tax evasion is likely to be even worse in many other countries which have far less stringent tax disclosure rules.

Only when we can truly assess how much personal wealth is stashed offshore will the scale of global equality be known, the economists say.