International Tax Evasion, State Purchases of Confidential Bank Data and Voluntary Disclosures

Abstract

International tax evasion is a major source of discontent for tax authorities. State purchases of bank data on suspected tax evaders from international tax havens constitute one tool to combat such tax evasion. Increasing the risks of detection, such purchases may spur voluntary disclosures for fear of facing charges for tax fraud. Tax authorities in Germany have made repeated use of this tool in recent years, above all in North-Rhine Westphalia, Germany's most populous federal state. Using self-compiled data for North-Rhine Westphalia on the timing and content of data acquisitions and on monthly voluntary disclosures of international tax evasion involving Swiss banks, we study the effects that such acquisitions had on the evolution of voluntary disclosures over time. Our results show that purchases of data on potential tax evaders had a positive and sizeable effect on voluntary disclosures. Various robustness checks and additional explorations corroborate this conclusion.