Wealth Taxation: The Key to Unlocking Capital Gains

Guttorm Schjelderup and Floris Zoutman

No 2024/10, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: We study how wealth taxes affect portfolio choice in the presence of a realization-based tax on capital gains. We develop a two-period model with heterogeneous investors. Capital gains taxations distort portfolio choice by providing an incentive to postpone realization.We show that a wealth tax levied alongside the capital gains tax can eliminate this distortion for all investors. We develop an optimal-tax model that trades of equity gains from the capital-gains and wealth tax to efficiency losses related to intertemporal and portfolio choice, and derive an elasticity-based empirical criterion for the desirability of a wealth tax.

Keywords: Wealth Tax; Capital-gains Tax; Dividend Tax; Lock-in Effect; Capital-market Efficiency (search for similar items in EconPapers)
JEL-codes: D14 G51 H21 H24 M21 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2024-09-30
New Economics Papers: this item is included in nep-pbe and nep-pub
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