Wealth Taxation and Wealth Accumulation: Theory and Evidence from Denmark

Katrine Jakobsen, Kristian Jakobsen, Henrik Kleven and Gabriel Zucman

No 24371, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using administrative wealth records from Denmark, we study the effects of wealth taxes on wealth accumulation. Denmark used to impose one of the world’s highest marginal tax rates on wealth, but this tax was drastically reduced and ultimately abolished between 1989 and 1997. Due to the specific design of the wealth tax, these changes provide a compelling quasi-experiment for understanding behavioral responses among the wealthiest segments of the population. We find clear reduced-form effects of wealth taxes in the short and medium run, with larger effects on the very wealthy than on the moderately wealthy. We develop a simple lifecycle model with utility of residual wealth (bequests) allowing us to interpret the evidence in terms of structural primitives. We calibrate the model to the quasi-experimental moments and simulate the model forward to estimate the long-run effect of wealth taxes on wealth accumulation. Our simulations show that the long-run elasticity of wealth with respect to the net-of-tax return is sizeable at the top of distribution. Our paper provides the type of evidence needed to assess optimal capital taxation.

JEL-codes: E2 E6 H2 H3 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-pub
Note: PE
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Citations: View citations in EconPapers (42)

Published as Katrine Jakobsen & Kristian Jakobsen & Henrik Kleven & Gabriel Zucman, 2020. "Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark*," The Quarterly Journal of Economics, vol 135(1), pages 329-388.

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Journal Article: Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark (2020)
Working Paper: Wealth Taxation and Wealth Accumulation: Theory and Evidence from Denmark (2018)
Working Paper: WEALTH TAXATION AND WEALTH ACCUMULATION: THEORY AND EVIDENCE FROM DENMARK (2018)
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