The equivalent of about 10 percent of global GDP is held offshore, ranging from a few percent of GDP in Scandinavia, to about 15 percent in continental Europe, and more than 50 percent in Russia, some Latin American countries, and Gulf countries, a new study* finds.
The Russian rich remain the most eager to park money outside their country, with 60 percent of the richest families choosing this route for wealth protection.
The United Arab Emirates heads the list of offshore wealth havens as a proportion of GDP, followed by Venezuela, Saudi Arabia, Russia, Argentina, Greece, Taiwan, Portugal, Turkey, and then a number of Western European countries.
The authors of the study, published by the National Bureau of Economic Research in Cambridge, Massachusetts, are researchers Annette Alstadsæter, Niels Johannesen and Gabriel Zucman. Their research is helped by the fact that more statistics becoming available because offshore tax transparency.
But they caution, “Despite some progress in curbing bank secrecy in recent years, very little has been achieved in terms of statistical transparency. With the exception of Switzerland, no major financial centre publishes comprehensive statistics on the amount of foreign wealth managed by its banks.”
At the same time, there is evidence that global offshore wealth has increased considerably over the last four decades, as a growing number of offshore centres have entered the market for cross-border wealth management, and information technology and financial innovation have made it simpler to move funds overseas.
The size of offshore wealth, of at least $5.6 trillion, is not easily explained by tax or institutional factors. Among countries with a large stock of offshore assets, are autocracies (Saudi Arabia, Russia), countries with a recent history of autocratic rule (Argentina, Greece), alongside old democracies (the UK, France).
Among those with the lowest stock of offshore assets, one finds relatively low-tax countries (Korea, Japan) alongside the world’s highest tax countries (Denmark, Norway).
Instead, geography and specific national trajectories seem to matter a great deal, the authors say.
“Proximity to Switzerland - the first country that developed a cross-border wealth management industry, in the 1920s - is associated with higher offshore wealth, as is the presence of natural resources, and political and economic instability post-World War II.”
The study also looked at the implications for wealth inequality because of offshore wealth. It constructed revised top wealth shares factoring in offshore assets for 10 countries where wealth distributions have recently been estimated - Denmark, Finland, France, the Netherlands, Norway, Russia, Spain, Sweden, the UK and US.
Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01 percent wealth share substantially, even in countries - such as Norway or Denmark - that do not use tax havens extensively.
Offshore wealth has a larger effect on inequality in the U.K., Spain, and France, where the study estimates that 30–40 percent of all the wealth of the 0.01 percent of richest households is held abroad.
The study underlines how Switzerland is declining as an offshore centre, amid the global drive for tax transparency. Switzerland hosted 40 percent of offshore wealth in 2001, peaking at peaking at 45-50 percent in 2006-2007, and declining to 30 percent in recent years.
The rest is held in the other cross-border wealth management centres. Indeed, while Switzerland has been declining since the financial crisis of 2008–2009, Asian offshore centres have been on the rise. The increase in offshore wealth has been particularly strong in Hong Kong. In 2007, Hong Kong managed less offshore wealth than Jersey, the Bahamas or the Cayman Islands.
From 2007 to 2015, its assets under management have been multiplied by a factor of six, and Hong Kong now ranks second behind Switzerland.