Unlocking the gates of paradise: General equilibrium effects of information exchange

In a move to reduce bank secrecy and fight international tax evasion, about 100 tax jurisdictions have so far committed to implement a new standard on the Automatic Exchange of Information (AEoI). This paper examines the quantitative consequences of the AEoI for an onshore country, using a neoclassical model with an offshore financial center. Our main findings are (i) the AEoI increases government revenues but reduces welfare; (ii) welfare improves when using the AEoI revenues to reduce tax pressure or when including household wealth inequality; (iii) government revenues increase further when accounting for a disclosure penalty cost. These results depend on the general equilibrium effects, absent from earlier papers on offshore financial centers.