Taxing the wealthy: the choice between wealth and capital income taxation

Author:

Bastani Spencer1,Waldenström Daniel2

Affiliation:

1. Institute for Evaluation of Labour Market and Education Policy (IFAU); Research Institute of Industrial Economics (IFN); UCFS, UCLS, CESIfo , Sweden

2. Research Institute of Industrial Economics (IFN) , Sweden

Abstract

Abstract This paper analyses the relative merits of wealth and capital income taxes as instruments for taxing the rich. The main rationale for a wealth tax is to address the incompleteness of the tax code in taxing unrealized capital gains, which can be enormous and concentrated among the wealthy. However, by taxing presumed rather than actual returns, a wealth tax fails to address inequality among taxpayers with the same wealth but different capital incomes. In addition, wealth taxation creates liquidity problems that may adversely affect growth firms and start-ups, which is why wealth taxes typically provide exemptions and deductions for certain business assets. Our empirical analysis, based on Swedish register data, describes the wealth composition of the wealthiest and assesses the distributional incidence of different combinations of wealth and capital income taxation.

Publisher

Oxford University Press (OUP)

Subject

Management, Monitoring, Policy and Law,Economics and Econometrics

Reference59 articles.

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