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One of the many things about Norway that blows people’s minds is that tax returns are public. For economists that means there’s a treasure trove of data to play with.
Tom Meling, Magne Mostad and Vestre have done precisely that for a paper just published by the National Bureau for Economic Research, which cross-references tax filings with data they obtained from crypto exchanges via the authorities.
Throw in surveys on crypto ownership and data on the Norwegian Tax Authority’s enforcements and you have the raw material needed to investigate whether allegations of mass tax evasion by crypto people were true. And lo:
We found that crypto tax non-compliance is pervasive, even among investors trading on exchanges that share identifiable trading data with tax authorities.
What exactly is “pervasive”? The paper estimates that 88 per cent of all Norwegian crypto holders fail to declare their hopium to the tax authorities.
Judging by the overall self-reported crypto holders in Norway, the paper estimates that 6 per cent of the Norwegian population (ca. 5.4mn in 2022, when the study period ended) were “crypto tax non-compliers”. If the researchers mean just the adult population, we’re talking about 250,000 people.
In another mind-blowing finding, the paper notes that “crypto tax non-compliance is concentrated among young, male, and urban individuals”. Truly shocking stuff.
However, a failure to disclose holdings is obviously different from outright tax evasion, even if both are illegal. A lot of people will hold such modest amounts, or simply be so underwater on their “investments”, that they don’t actually owe any taxes.
Estimating the scale of the unpaid taxes is tricky, given that the information is obviously not disclosed to the authorities, the surveys don’t indicate the average size of Norwegian crypto holdings, and overseas crypto exchanges — where most Norwegians also trade — don’t disclose any information.
But the researchers had a stab, and they reckon it’s not hugely meaningful.
Taking a partial identification approach, we construct lower and upper bounds of $200 and $1,087 on the average value of tax evasion across all crypto tax non-compliers.
In other words, while a large number of crypto investors fail to declare their cryptos, each owes a modest amount of taxes. This finding suggests that tax enforcement strategies in the context of cryptos need to be well-targeted or cheap for the benefits to outweigh the costs.
Which is true, but focusing on the average value of tax evasion arguably obscures the aggregate scale.
Assuming that the 6 per cent figure is just the adult population, and taking the lower estimate, the aggregate missing taxes clock in at over $50mn, or about NKr530mn in 2022. At the higher bound the missing taxes would be $272mn, or Nrk2.8bn.
Which is piddling in the context of the Norwegian government’s NKr721bn 2022 tax take, but even at the lower bound it would still be enough to pay for at least six new kindergartens.
And if you extrapolate the findings to more meaningful countries, then we’re talking serious money. No wonder Elizabeth Warren and Bernie Sanders want the IRS to toughen up.