GRADE Simulations

The impact of tax havens on development

This tool models the foreseeable impact on development of revenue lost when there is profit shifting, data was available 2015–2021. It also models the development gains accrued from the captured revenue. Profit-shifting estimates are from the Atlas of the Offshore World (International Tax Observatory & Skatteforsk — Norwegian Centre for Tax Research).

Background

The developmental impact of revenue varies by country. Several mechanisms contribute to this and include:

  1. Additional revenue has a larger fiscal impact in low-income countries.
    Government revenue per capita varies significantly among countries. For example, if a low-income country with a population of 10 million and revenue of $100 per person receives an additional $200 million, revenue per person rises by $20 — a 20% increase. The same $200 million in a high-income country with a population of 10 million and revenue of $20,000 per person would increase revenue by just 0.1%.
  2. The development return on revenue diminishes as countries develop.
    Countries in the earlier stages of development often experience rapid increases in the coverage of development indicators with additional revenue because early improvements are less expensive to achieve. Countries at the plateau phase of development (most tax havens) will see minimal benefit from additional revenue on these indicators (Figure 1).
  3. Revenue improves governance. Additional revenue strengthens governance, which, in turn, amplifies the development impact of that revenue, as illustrated by the steeper dashed curve in Figure 1.
S-curve: Government Revenue per capita vs Coverage of Development Indicators A sigmoid curve showing that coverage of development indicators rises slowly at low revenue levels, accelerates rapidly in the middle range, then plateaus near 100%. Quality of governance steepens the gradient. Coverage of Development Indicators (water, sanitation, education, healthcare, social security) Government Revenue per capita 100% Low initial coverage A rapid increase Quality of governance increases the gradient Plateau phase Baseline trajectory Higher governance quality

Figure 1. The relationship between government revenue per capita and the coverage of development indicators follows an S curve. Early gains are large and relatively cheap; the rate of improvement then accelerates through a middle range, and coverage levels off as it approaches universal. Better governance steepens the curve for all income levels.

Losses substantially exceed gains154 revenue-losing countries lost $1,348bn  vs  41 tax havens gained $545bn  (2015–2021, USD)

There are stark differences between countries, both in the volume of revenue shifted and the resulting development impact. We use the term revenue-losing countries for countries that lose revenue through profit shifting and tax havens for countries that gain revenue. The four largest tax havens — Switzerland ($159bn), the Netherlands ($132bn), Ireland ($59bn), and Belgium ($50bn) — have a combined population of 43 million and captured $400bn of the total $545bn tax haven gain over 2015–2021.

Methods

Profit-shifting estimates were obtained from the Atlas of the Offshore World. The revenue data cover 154 revenue-losing countries and 41 tax havens. This was input into GRADE.

Findings

The modelled output is available for 150 revenue-losing countries and 37 tax havens.

Outcomes: Outcomes are indicators across four domains: child and maternal survival and health, education, basic services (water, sanitation, electricity, clean fuels), and social security. Cumulative outcome figures are only computed for flow variables (deaths averted, additional child school years) which can be summed across years. For stock variables (e.g. the numbers accessing basic water) we report the value in the latest year (2021), the same person is counted only once.

Time frame: Allows the selection of a single year, or “2015–2021” for the full cumulative window. Tap any bar in the chart, map, or country in the sortable table — to see that country’s full profile. Country profiles include a copy-link button, and a PDF brief.

Income group: Allows selection of all income groups or one of the four World Bank Income groups.

Relative to development losses borne by 150 countries, the gains for 37 tax havens are very modest — toggle between revenue-losing countries and tax havens to compare.

🔴 150 revenue-losing countries
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🟢 37 tax havens
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Tip: click any country bar to see its full development profile.
Source: GRADE simulations (Universities of St Andrews and Leicester). Profit-shifting estimates from the Atlas of the Offshore World. Country-year panel: 150 revenue-losing countries and 37 tax havens, 2015–2021.