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An empirical analysis of wealth taxation: Equity Vs.tax compliance

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Author Info
José Mª Durán Cabré () (Grup en Federalisme Fiscal i Economia Regional(Institut de Recerca en Economia - IEB), Departament d'Economia Política i Hisenda Pública, Universitat de Barcelona)
Alejandro Esteller Moré () (Grup en Federalisme Fiscal i Economia Regional(Institut de Recerca en Economia - IEB), Departament d'Economia Política i Hisenda Pública, Universitat de Barcelona)

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Abstract

Capital taxation is currently under debate, basically due to problems of administrative control and proper assessment of the levied assets. We analyze both problems focusing on a capital tax, the annual wealth tax (WT), which is only applied in five OECD countries, being Spain one of them. We concentrate our analysis on top 1% adult population, which permits us to describe the evolution of wealth concentration in Spain along 1983-2001. On average top 1% holds about 18% of total wealth, which rises to 19% when tax incompliance and under-assessment is corrected for housing, the main asset. The evolution suggests wealth concentration has risen. Regarding WT, we analyze whether it helps to reduce wealth inequality or, on the contrary, it reinforces vertical inequity (due to especial concessions) and horizontal inequity (due to the de iure and to de facto different treatment of assets). We analyze in detail housing and equity shares. By means of a time series analysis, we relate the reported values with reasonable price indicators and proxies of the propensity to save. We infer net tax compliance is extremely low, which includes both what we commonly understand by (gross) tax compliance and the degree of under-assessment due to fiscal legislation (for housing). That is especially true for housing, whose level of net tax compliance is well below 50%. Hence, we corroborate the difficulties in taxing capital, and so cast doubts on the current role of the WT in Spain in reducing wealth inequality.

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Publisher Info
Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number XREAP2007-03.

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Length: 78 pages
Date of creation: Jun 2007
Date of revision: Jun 2007
Handle: RePEc:xrp:wpaper:xreap2007-03

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Postal: Espai de Recerca en Economia, Facultat de Ci�ncies Econ�miques i Empresarials, Universitat de Barcelona, c/ Tinent Coronel Valenzuela, 1-11, 08034 Barcelona
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Related research
Keywords: Wealth tax; wealth distribution; tax compliance.;

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Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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