The Strategist

10% of the world's GDP are hidden in offshores

09/15/2017 - 14:24

The volume of assets in offshore accounts for 10% of world GDP, according to researchers from the National Bureau of Economic Research (NBER). This indicator varies considerably. For the Scandinavian countries, it’s just several percent of gross national product. On the other hand, citizens of countries of Persian Gulf and Latin America hide 60% of gross national product. The offshore assets dramatically change the picture of property stratification, based on national tax data, the NBER noted.
The volume of offshore assets has grown significantly over the past 40 years, and technology and innovation have made it easier to remit money abroad, say the researchers. According to their estimates, about 8% of the financial wealth of households is concentrated in tax havens - this is 10% of world GDP, or $ 5.6 trillion (taken 2007 as a benchmark).

The offshores leader is Switzerland. In 2006-2007, it accounted for 45-50% of all offshore assets. In recent years, due to global de-offshorization and increasing influence Asian centers, this indicator has fallen to 30%. The second most important modern financial center is Hong Kong: the volume of offshore assets there has increased six-fold since the global financial crisis.

Since 2016, a number of jurisdictions, including Switzerland, Luxembourg, the Channel Islands and Hong Kong, have begun to disclose information on the size of assets held by their citizens in different countries. Also, investigators get additional information from a number of leaks, such as the publication of the Panama Archives. Nevertheless, the researchers admit, these data cannot be considered complete. In particular, they take into account only deposits, but not securities, bonds and shares of mutual funds. In addition, the active use of one-day companies registered, for example, in the British Virgin Islands or Panama - a phenomenon that has become widespread since the mid-2000s - makes it difficult to determine the origin of assets.

As the NBER notes, the volume of offshore assets for different countries varies significantly. Inhabitants of Scandinavian countries are hiding the least amount of money is hidden - no more than 2% of GDP. In Central Europe, however, this figure already reaches 15%, and jumps to 60% of GDP in the Russian Federation, the countries of the Persian Gulf and Latin America. At the same time, the volume of offshore assets does not depend on tax factors or the system of government. The lower border of the spectrum includes both low tax countries, such as Korea, Japan, and countries with the highest taxes in the world - Denmark and Norway. On the top, we can see autocracies along with old democracies. 

The geographical proximity to "tax havens" and "specific national development trajectories" are one of the most important factors, the NBER says.

The offshore statistics is fundamentally changing the picture of global inequality, which has traditionally been based on tax data, the researchers emphasize. About 80% of offshore assets are owned by 0.1% of the richest households, and 50% are possessed by the top 0.01%. In the UK, Spain and France, 30-40% of the savings of their richest segment of the population are stored offshore. In China, by contrast, the figure does not exceed 2.3% of GDP, although Hong Kong's sharp rise as a financial center since 2007 may indicate the growth of Chinese offshore assets. In general, despite the reduction in the practice of banking secrecy, the statistics remain extremely opaque, which makes it difficult to assess global wealth, the NBER notes.