Behavioral responses to wealth taxation: evidence from a Norwegian reform

Roberto Iacono () and Bård Smedsvik

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We analyze behavioral responses to wealth taxation, estimating the causal effects of a unique municipal wealth tax reform in Norway. We exploit variation from the single-period municipal reform reducing the marginal tax rate (MTR) on wealth exclusively in the northern Norwegian municipality of Bø from 0.85% to 0.35%, since 2021. Mimicking the behaviour of a tax haven, Bø represents the first municipality to unilaterally reduce the municipal wealth tax rate since the establishment of wealth taxation in Norway in 1892. We document a significant 66.6% increase in average taxable wealth in response to a 1 percentage point drop in the wealth tax rate. The elasticity of taxable wealth increases to 71.6% when focusing exclusively on wealth taxpayers. We also estimate a significant but more modest 10.3% jump in the weighted mass of wealth taxpayers in the treated municipality. Non-real effects of the reform dominate: mobility of wealthy taxpayers appears as the major behavioral response to the change in the net tax rate, accounting for a staggering 79% of the post-treatment total net wealth in the treated municipality (up from 19% in the pre-reform period). These results emerge in a context with third-party reported wealth data with negligible measurement error, limited evidence of bunching, highly enforced residence-based wealth taxation, and a low degree of out-migration rates.

Keywords: wealth tax; administrative data; mobility effects (search for similar items in EconPapers)
JEL-codes: H20 H21 H24 H26 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2023-12-01
New Economics Papers: this item is included in nep-acc, nep-mig, nep-pbe, nep-pub and nep-ure
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http://eprints.lse.ac.uk/121084/ Open access version. (application/pdf)

Related works:
Working Paper: Behavioral Responses to Wealth Taxation: Evidence from a Norwegian Reform (2024)
Working Paper: Behavioral responses to wealth taxation: evidence from a Norwegian reform (2023)
Working Paper: Behavioral responses to wealth taxation: evidence from a Norwegian reform (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:121084

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