Exploiting unique datasets covering over 29,000 tax evaders in the Netherlands, we investigate the distribution of tax evasion and its implications for the measurement of wealth inequality. Tax evasion is concentrated at the top of the wealth distribution with over 10% of the wealthiest 0.01% of households – the “super rich” – evading taxes. At the top, households evade around 8% of their true tax liability. The “merely rich” (P90-P99.9) own 67% of hidden wealth, while the “super rich” account for only 7%. Consequently, the correction for offshore wealth has a modest effect on top wealth shares. We describe a number of explanations for the distribution of tax evasion by Dutch households: low-cost tax evasion opportunities in neighbouring countries for the “merely rich”, sophisticated forms of tax evasion for, low effective tax rates on and migration to low tax jurisdictions by the “super rich”. Taken together, these explanations suggest that the distribution of tax evasion strongly depends on a country’s geographical and institutional settings.

Highlights

• We study the distribution of tax evasion using Dutch data on 29,000 tax evaders.

• Tax evasion is concentrated at the top, especially among the merely rich (P90-P99.9).

• The merely rich have low-cost tax evasion opportunities in neighbouring countries.

• The super rich face low taxes, migrate, or use more sophisticated forms of evasion.

• This suggests that tax evasion depends on a country’s geography and institutions.