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Wealth Taxation And Wealth Accumulation: Theory And Evidence From Denmark

Author

Listed:
  • Katrine Jakobsen

    (CEBI, Department of Economics, University of Copenhagen)

  • Kristian Jakobsen

    (Social Capital Fund)

  • Henrik Kleven

    (Princeton University and NBER)

  • Gabriel Zucman

    (UC Berkeley and NBER)

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.

Suggested Citation

  • Katrine Jakobsen & Kristian Jakobsen & Henrik Kleven & Gabriel Zucman, 2018. "Wealth Taxation And Wealth Accumulation: Theory And Evidence From Denmark," CEBI working paper series 18-04, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    • Handle: RePEc:kud:kucebi:1804
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    More about this item

    Keywords

    Saving; Wealth; Tax; Taxation; Public Economics; Public Finance; Fiscal Policy;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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