How much tax do the rich really pay? Evidence from the UK

Using anonymised 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 income level: a quarter of those in the top 1% pay headline rates, while another quarter pay at least 15% (7pp) 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 £40bn (an increase of 15%).

Speaker:

Arun Advani is an Associate Professor in the Economics Department at the University of Warwick, as well as having affiliations with the Institute for Fiscal Studies, the International Inequalities Institute, and the CAGE Research Centre.

He studies issues of inequality, tax compliance, and tax design, with a focus on those with high incomes or wealth. He was a Commissioner at the Wealth Tax Commission. He also works on issues of environmental taxation, economic development, migration, and tax in low- and middle-income countries.

Alongside his academic work, he is co-founder and co-chair of the Discover Economics campaign, aiming to increase the diversity of people who study and work in economics. He is also an Associate Editor at Fiscal Studies, and on the Editorial Board of the Economics Observatory.