Tax journalist Andrew Goodall has written about the World Bank's reluctance to address the issue of measuring capital flight or the quantum of tax lost to the developing world as a result of it. He says:
I don't blame Baker or anyone else for trying to assess the impact of capital flight. If, as suggested, it exceeds aid flows from developed countries by a considerable margin, then we really are living in a mad mad world. I understand that we will see more from Baker in the near future. But more and better research is needed, and fast.
I'm not sure I agree, and am in Norway (again) this week, saying so.
As I've pointed out, it seems that the main body of work on this issue seems to be that of Raymond Baker, Alex Cobham of Christian Aid, John Christensen of the Tax Justice Network and myself. You can interpret that in two ways. One is that we've done a reasonable job, our estimates broadly converge, and the amounts involved are so large that the case for action has been made. Or you can interpret it Andrew's way, that much more work is needed.
The latter was Norway's position. That is why they asked the World Bank to do a study. The World Bank has declined to do that study, although it accepted the funding.
So I'm suggesting a quite different approach to Norway. Suppose Baker et al are wrong. Suppose the total figure is not as high as $400 billion of loss a year, as we think it might be in tax terms, and much more in terms of capital flight? Suppose it's only half that. Suppose (and I think this unlikely) that we have grossly overestimated this sum even though statistically the opposite error is much more likely - because we're trying to measure what is not declared, with the likelihood that we're always bound to underestimate. Even if we were 50% out and had doubled the right figure the result would still be revenues lost that exceeds the global aid budget and the cost of the Millennium Development Goals.
In that case isn't it time to stop worrying about greater precision, which will always to some degree be spuriously accurate, and instead we need to focus on solutions, ow. Isn't this where the research money needs to go now?
That's my proposal to Norway given that I think their project with the World Bank will not bear the fruit that they desired. I think that's a much more proactive and useful approach now.
So whilst I note what Andrew says, I beg to differ.
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I think that the only real way to appreciate the magnitude of illicit capital flight, tax evasion and embezzlement is to bring down the secrecy provisions first and then investigate.
It seems to me quite daft to look at it from the angle of trying to estimate its scale from “behind the veil of secrecy” so to speak. The nature of secrecy provisions make such an enquiry difficult, and i hope that pursuing this path of estimation and investigation would not serve as a straw man to knock down for those advocating tax haven secrecy provisions. Lets do away with the secrecy provisions and then have an informed analysis based on the evidence.
I am surprised that no one on this site makes the link between the “licit” stripping of wealth from developing countries by the taxation regimes of developed countries, either by means of double taxation when there is no tax treaty in place, or by operation of OECD style tax treaties when there is such a treaty in place. No one here said anything about the OECD telling its members to stop offering tax treaties with sparing clauses. No one questions the fact that there is no economic justification for the ‘residence’ country to get the lion’s share of wealth for providing ‘management services’ whether in relatin to resource extraction or computer services. No one mentions that the World Bank and IMF have encouraged African countries to stop direct taxation of their resource sectors and instead move to VAT regimes when the fact is that this means that the tax revenues of African countries fall as VAT on exports is zero rated. Is this blindness/bias bred into middle-class white European males? I suspect that the reason that no one wants to measure the illicit flow is that most of the illicit flows as well as the much larger immoral “licit” flows indirectly benefit the same public purses of former colonial masters.
Al
You clearly aren’t reading enough
Read Closing the Floodgates (just search it on the site) and you’ll see just exactly what the core of our concerns are
I think you’ll find we’re right with you
Richard
Richard and Ben, I agree. In the present circumstances the priority must be for governments to act together effectively to lift the veil of secrecy that has enabled tax havens to flourish:
http://andrewgoodall.typepad.com/andrew/2008/11/tax-haven-secre.html