The recent document leak known as the Panama Papers suggests that numerous world leaders and their cronies as well as other powerful individuals avoid paying taxes by setting up shell companies in Panama, a country known for its banking secrecy.
But it’s important to remember that just because people opened a bank account or created a company in Panama does not mean they did anything illegal. Yet that’s not stopping tax activists from using the leak to bolster their claims that the wealthy do not pay their fair share of taxes.
The bigger question surrounding the leak is how political leaders got so rich in the first place. Cronyism — politicians and businesses colluding with each other to obtain special privileges — almost surely played a part.
In the Learn Liberty video below, Georgetown University Professor Jason Brennan explains how cronyism hurts the economy. He argues that the best way to limit cronyism is to limit the power the state has to distribute favors. Looking through the list of corrupt governments outed in the Panama Papers shows that this is a tall order!