Research Publications

Using administrative data on the universe of UK taxpayers, we study the contribution of migrants to the rise in UK top incomes. We show migrants are over-represented at the top of the income distribution, with migrants twice as prevalent in the top 0.01% as anywhere in the bottom 97% of taxpayers. These high incomes are predominantly from labour, rather than capital, and migrants are concentrated in only a handful of industries, predominantly finance. All of the observed growth in the UK top 1% income share over the past 20 years has accrued to migrants.

Sam Friedman, Victoria Gronwald, Andrew Summers and Emma Taylor (2024)
International Inequalities Institute (III) Working Paper no. 131 

Britain’s policymakers, like many around the world, are concerned about the emigration of
top taxpayers in response to tax policy. Existing evidence on this kind of tax flight is either
quantitative or comes from a handful of high-profile individuals issuing politicised warnings
about tax migration in the media. We know little about how the wealthy actually consider their
tax burden when making decisions about where to live. This report summarises new qualitative
research exploring the migration decisions of Britain’s wealthiest and highest earning individuals. Specifically, we draw on in-depth interviews with 35 individuals, all of whom were in the
top 1% of the distribution by income and/or wealth, to explore whether top earners and wealth
holders in Britain would consider migrating for tax reasons and what they value most when
deciding where to live.

Arun Advani, David Burgherr, and Andy Summers (2023)
IZA Discussion Paper 16432
Winner of IIPF Young Economist Award 2023

Using administrative data on the globally connected super-rich in the UK, we study the effect of a large tax reform on migration behaviour. Prior to 2017, offshore investment returns for `non-doms’ – individuals tax-resident in the UK but with connections to other countries – were untaxed. People making use of that tax status are strongly concentrated at the top of the income distribution: 86% are in the UK top 1% and 29% in the top 0.1% once overseas investment income is taken into account. A reform in 2017 brought long-stayers, who had been in the UK for at least 15 of the last 20 years, into the standard tax system, reducing their effective net-of-average-tax rate by 18%. We find that emigration responses were modest: our central estimate is that the emigration rate increases by 0.26 percentage points for a 1% decline in the net-of-tax rate, and we can rule out increases larger than 0.4 percentage points. Dispelling fears that the targeted taxpayers were able to circumvent the tax hike, we find large average increases in income reported and tax paid in the UK of more than 150%

Arun Advani, Helen Hughson, Andy Summers
Oxford Review of Economic Policy, Volume 39, Issue 3, Autumn 2023, Pages 406–437,
https://doi.org/10.1093/oxrep/grad032 

Using anonymized administrative data on the population of UK taxpayers, we show that—in line with high-profile anecdotes about the tax affairs of the rich—effective average tax rates (EATRs) decline at the top of the distribution of income and capital gains. We also document substantial variation in EATRs within remuneration level: a quarter of those in the top 1 per cent pay headline rates, while another quarter pay at least 9pp less than the headline rate. Most of this effect is driven by the composition of remuneration, with investment income having lower tax rates and capital gains having lower rates still. If all individuals with income above £100,000 paid the headline rates, this would raise tax revenue on income and gains by £23 billion on a static basis, an increase of 27 per cent in the tax paid by this group.

Arun Advani, William Elming, Jonathan Shaw
The Review of Economics and Statistics (2023) 105 (3): 545–561.
https://doi.org/10.1162/rest_a_01101

We study the effects of audits on long run compliance behavior using a random audit program covering more than 53,000 tax returns. We find that audits raise reported tax liabilities for five years after audit, effects are longer-lasting for more stable sources of income, and only individuals found to have made errors respond to audit. A total of 60%–65% of revenue from audit comes from the change in reporting behavior. Extending the standard model of rational tax evasion, we show that these results are best explained by information revealed by audits constraining future misreporting. Together these imply that more resources should be devoted to audits, audit targeting should account for reporting responses, and performing audits has additional value beyond merely threatening them.

Arun Advani, Andy Summers, Hannah Tarrant
Journal of the Royal Statistical Society Series A: Statistics in Society, Volume 186, Issue 2, April 2023, Pages 241–258
https://doi.org/10.1093/jrsssa/qnac008 

Information about the share of total income held by the richest 1%, or other top income groups, is increasingly used to discuss inequality levels and trends within and between nations. A top income share is the ratio of the total income held by the top income group divided by total personal income (the ‘income control total’). We compare two approaches to estimating income control totals: the ‘external’ approach used by the World Inequality Database, and an augmented ‘internal’ approach. We argue in favour of the latter, with reference to five desirable properties that a top share series would ideally possess. The choice matters: our augmented ‘internal’ approach yields estimates of the UK top 1% share that are around 2% points higher than the ‘external’ approach.

Andy Summers (2022)
LSE Public Policy Review (November 2022)

A major constraint on progressive tax reform is that somehow, the richest always seem to find ways not to pay. Is this inevitable? Focusing on the UK context, I begin by reviewing two past attempts to raise taxes on those at the top – the changes to the top rate and dividend rates of income tax, and reforms to ‘non-dom’ tax status – and explore whether and why these policies failed. I then discuss three key policy areas that must be addressed to successfully increase taxes on the super-rich: capital taxes (on capital gains, inheritances and gifts), the challenges posed by international mobility of assets and individuals, and trusts. Reform of these areas could directly raise additional revenue from the super-rich and would also provide a backstop needed to support more familiar levers such as increasing the top income tax rate.

Arun Advani, David Burgherr, Mike Savage and Andy Summers (2022)
CAGE Working Paper 570 (April 2022)

In this paper we show the importance of international ties amongst the UK’s global economic elite, by exploiting administrative data derived from tax records. We show how this data can be used to shed light on the kind of transnational dynamics which have long been hypothesised to be of major significance in the UK, but which have previously proved intractable to systematic study. Our work reveals the enduring and distinctive influence of long-term imperial forces, especially to the former ‘white settler’ ex-dominions which have been called the ‘anglosphere’. These are allied to more recent currents associated with European integration and the rise of Asian economic power. Here there are especially strong ties to the ‘old EU-6’ nations of France, Germany, Netherlands, Belgium, Luxembourg, and Italy. The incredible detail and universal coverage of our data means that we can study those at the very top with a level of granularity that would be impossible using traditional survey sources. We find compelling support for the public perception that non-doms are disproportionately highly affluent individuals who can be viewed as a part of a global elite. However, whilst there is some evidence for the stereotype of the global wealthy parking themselves in the UK, this underplays the significance of the working rich. Our analysis also reveals the remarkable concentration of non-doms in central areas of London

Arun Advani, Tahnee Ooms, and Andy Summers (2022)
Journal of Social Policy. 2024;53(2):386-406.
doi:10.1017/S0047279422000290

Policymakers tend to ‘treasure what is measured’ and overlook phenomena that are not. In an era of increased reliance on administrative data, existing policies also often determine what is measured in the first place. We analyse this two-way interaction between measurement and policy in the context of the investment incomes and capital gains that are missing from the UK’s official income statistics. We show that these ‘missing incomes’ change the picture of economic inequality over the past decade, revealing rising top income shares during the period of austerity. The underestimation of these forms of income in official statistics has diverted attention from tax policies that disproportionately benefit the wealthiest. We urge a renewed focus on how policy affects and is affected by measurement..

Arun Advani  (2022) Fiscal Studies, 43, 5–22. 
https://doi.org/10.1111/1475-5890.12257

Few topics attract such intense political debate as top tax rates: in the UK, this has led to two top income tax rate reforms since the financial crisis. Recently, the measurement of top incomes and wealth has also proved controversial, in both the UK and the US. The chapter by Delestre et al. (2022) examines both of these issues. It first studies the distribution of income in the UK, focusing on the income sources and demographics of those at the top, as well as non-taxable sources of income. It then describes the current taxation of top incomes, and suggests some directions for reform. Mirroring this structure, in this commentary we discuss first the measurement of financial inequalities, focusing on top income and wealth shares, and then the scope for policy reforms to tackle some of the issues raised, also focusing on the UK.

Arun Advani and Andy Summers (2022)
IFS Deaton Review of Inequalities

Few topics attract such intense political debate as top tax rates: in the UK, this has led to two top income tax rate reforms since the financial crisis. Recently, the measurement of top incomes and wealth has also proved controversial, in both the UK and the US. The chapter by Delestre et al. (2022) examines both of these issues. It first studies the distribution of income in the UK, focusing on the income sources and demographics of those at the top, as well as non-taxable sources of income. It then describes the current taxation of top incomes, and suggests some directions for reform. Mirroring this structure, in this commentary we discuss first the measurement of financial inequalities, focusing on top income and wealth shares, and then the scope for policy reforms to tackle some of the issues raised, also focusing on the UK.

Arun Advani (2021)
CAGE working paper no. 589 (October 2021)

Capital gains are particularly complex to tax given their infrequency, the different ways in which they are generated, and worries about harming productivity. There are theoretical arguments in support of everything from zero rates to high rates of tax on capital. In this paper, I first discuss the impact of capital gains on inequality, which often motivates discussions about how gains should be taxed. I then set out the principles that determine how gains should be taxed, in particular how the tax rate should relate to income tax rates. I propose that capital gains tax rates be equalized with income tax rates, subject to provisions to allow gains to be ‘smoothed’ over time and to remove inflation from the tax base. I highlight key transitional issues in moving to such a tax structure. Finally, I discuss the specific lessons for Canada.

This paper was prepared for a special Policy Forum at the Canadian Tax Journal. 

Arun Advani, Helen Miller and Andy Summers (2021)
Fiscal Studies, 42: 389–395. 
https://doi.org/10.1111/1475-5890.12289

This paper introduces a special issue on a Wealth Tax, which draws together the latest thinking on wealth taxes with the aim of filling this gap. It draws heavily on international experience and evidence, applying these insights to the UK context. The papers build on work undertaken for the Wealth Tax Commission, which delivered its final report in December 2020. The contributors to this special issue include tax practitioners and academic lawyers as well as economists, reflecting our view that this range of expertise is essential to evaluating the practice, as well as principles, of a wealth tax. In this paper we touch upon some common themes arising across the papers. We also highlight some important remaining gaps in the evidence base on wealth taxes, particularly on the measurement of wealth and behavioural responses at the very top of the wealth distribution

Andy Summers (2021)
Fiscal Studies, 42: 485–507.
https://doi.org/10.1111/1475-5890.12285

Arun Advani, Helen Hughson & Hannah Tarrant (2021) 
Fiscal Studies, 42: 699–736. 
https://doi.org/10.1111/1475-5890.12280 

In this paper, we model the revenue that could be raised from an annual and a one-off wealth tax of the design recommended by Advani, Chamberlain and Summers in the Wealth Tax Commission’s Final Report (2020). We examine the distributional effects of the tax, in terms of both wealth and other characteristics. We also estimate the share of taxpayers who would face liquidity constraints in meeting their tax liability. We find that an annual wealth tax charging 0.17 per cent on wealth above £500,000 could generate £10 billion in revenue, before administrative costs. Alternatively, a one-off tax charging 4.8 per cent (effectively 0.95 per cent per year, paid over a five-year period) on wealth above the same threshold, would generate £250 billion in revenue. To put our revenue estimates into context, we present revenue estimates and costings for some commonly proposed reforms to the existing set of taxes on capital.

Arun Advani & Hannah Tarrant (2021)
Fiscal Studies, 42: 509–537. 
https://doi.org/10.1111/1475-5890.12283

In this paper, we review the existing empirical evidence on how individuals respond to the incentives created by a net wealth tax. Variation in the overall magnitude of behavioural responses is substantial: estimates of the elasticity of taxable wealth vary by a factor of 800. We explore three key reasons for this variation: tax design, context and methodology. We then discuss what is known about the importance of individual margins of response and how these interact with policy choices. Finally, we use our analysis to systematically narrow down and reconcile the range of elasticity estimates. We argue that a well-designed wealth tax would reduce the tax base by 7–17 per cent if levied at a tax rate of 1 per cent.

Arun Advani, George Bangham & Jack Leslie (2021)
Fiscal Studies, 42: 397–430. 
https://doi.org/10.1111/1475-5890.12286

We show that wealth inequality in the UK is high and has increased slightly over the past decade as financial asset prices have increased in the wake of the financial crisis. But data deficiencies are a major barrier in understanding the true distribution, composition and size of household wealth. The most comprehensive survey of household wealth in the UK does a good job of capturing the vast majority of the wealth distribution, but nearly £800 billion of wealth held by the very wealthiest UK households is missing. We also find tentative evidence that survey measures of high-wealth families undervalue their assets – our central estimate of the true value of wealth held by households in the UK is 5 per cent higher than the survey data suggest.

Arun Advani and Andy Summers (2020)
CAGE Working Paper 465 (April 2020)

Aggregate taxable capital gains in UK have tripled in the past decade. Using confidential administrative data on the universe of UK taxpayers, we show that including gains changes the picture of UK inequality over the past two decades. These taxable gains are largely repackaged income, so their exclusion biases the picture of inequality. Including them changes who is at the top of the distribution, adding more business owners and older people. The share of income plus gains (both pre- and post-tax) going to the top 1% is 3pp higher than for income only, and this gap has been steadily rising.