Effects of signalling tax evasion on redistribution and voting preferences: Evidence from the Panama Papers.

Laila Ait Bihi Ouali

doi:10.1371/journal.pone.0229394

Abstract

This paper provides empirical evidence that individuals substantially revise their stated wealth redistribution preferences after fiscal scandals. The 2016 Panama Papers scandal revealed top-income tax evasion behaviour simultaneously worldwide. The empirical investigation exploits this event as a quasi-natural experiment. I rely on two original datasets, a UK household longitudinal dataset and a survey conducted in 22 European countries. I use a difference-in-differences strategy and find that pro-redistribution statements increased between 2% and 3.3% after the scandal. Responses are heterogeneous and larger for right-wing individuals and low-income individuals. This change in wealth redistribution preferences is likely to have been translated into a slight change in votes. The results suggest an increase in stated voting intentions for the left and a decrease for the right. Complementary estimations reveal that more media coverage and more individuals involved by country increase the magnitude of the response.

Highlights

Do people revise their views of inequality and taxation after an informational shock? In the past decade, leaks have uncovered tax evasion behaviours, successively exposing firms and top-income earners both at the country level and worldwide
This study tests whether individuals revised their beliefs after the Panama Papers scandal, which provided information on tax evasion from top-income earners
I find that this informational shock influences individual beliefs

Summary

Introduction

Do people revise their views of inequality and taxation after an informational shock? In the past decade, leaks have uncovered tax evasion behaviours, successively exposing firms and top-income earners both at the country level and worldwide. A recent and substantial strand of literature investigates the extent of tax evasion with the aim to quantify it. This literature namely shows that top-income tax evasion is substantial and occurs especially at the very top of the income distribution [2]. Using information from the Panama Papers, they find that, on average, 3% of personal taxes are evaded while between 25% and 30% are evaded by the top 0.01%. Such information could trigger an increase of inequality beliefs

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