IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v209y2023ics092180092300112x.html
   My bibliography  Save this article

Can a European wealth tax close the green investment gap?

Author

Listed:
  • Kapeller, Jakob
  • Leitch, Stuart
  • Wildauer, Rafael

Abstract

This paper analyses the European Commission's assessment of investment needs as implied by the EU's Paris commitment. We find that official estimates of the green investment gap until 2050 are likely to seriously understate actual investment required. Against this backdrop, we assess the potential of a European wealth tax to close this investment gap. In doing so, we first provide a detailed estimate of the wealth distribution across 22 EU member countries and then develop a microsimulation model for recurring wealth taxes in these countries. The model is based on household survey data from the HFCS, but compensates for missing observations at the top of the wealth distribution by means of a Pareto model. Taking different tax designs into account, we generally find a substantial revenue potential that could contribute significantly to closing currently existing green investment gaps. We also find that compensating for the ‘missing rich’ is essential for sensibly evaluating progressive tax designs.

Suggested Citation

  • Kapeller, Jakob & Leitch, Stuart & Wildauer, Rafael, 2023. "Can a European wealth tax close the green investment gap?," Ecological Economics, Elsevier, vol. 209(C).
    • Handle: RePEc:eee:ecolec:v:209:y:2023:i:c:s092180092300112x
    DOI: 10.1016/j.ecolecon.2023.107849
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S092180092300112X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ecolecon.2023.107849?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lucas Chancel & Thomas Piketty, 2015. "Carbon and inequality: From Kyoto to Paris Trends in the global inequality of carbon emissions (1998-2013) & prospects for an equitable adaptation fund World Inequality Lab," Working Papers halshs-02655266, HAL.
    2. Łukasz Rawdanowicz & Eckhard Wurzel & Ane Kathrine Christensen, 2013. "The Equity Implications of Fiscal Consolidation," OECD Economics Department Working Papers 1013, OECD Publishing.
    3. Bertrand Garbinti & Jonathan Goupille-Lebret & Thomas Piketty, 2021. "Accounting for Wealth-Inequality Dynamics: Methods, Estimates, and Simulations for France," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 620-663.
    4. Thomas Piketty & Emmanuel Saez, 2013. "A Theory of Optimal Inheritance Taxation," Econometrica, Econometric Society, vol. 81(5), pages 1851-1886, September.
    5. Buch-Hansen, Hubert & Koch, Max, 2019. "Degrowth through income and wealth caps?," Ecological Economics, Elsevier, vol. 160(C), pages 264-271.
    6. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2022. "Behavioral Responses to Wealth Taxes: Evidence from Switzerland," American Economic Journal: Economic Policy, American Economic Association, vol. 14(4), pages 111-150, November.
    7. Katrine Jakobsen & Kristian Jakobsen & Henrik Kleven & Gabriel Zucman, 2020. "Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 329-388.
    8. Schularick, Moritz & Albers, Thilo & Bartels, Charlotte, 2022. "Wealth and its Distribution in Germany, 1895-2018," CEPR Discussion Papers 17269, C.E.P.R. Discussion Papers.
    9. Paul Eckerstorfer & Johannes Halak & Jakob Kapeller & Bernhard Schütz & Florian Springholz & Rafael Wildauer, 2016. "Correcting for the Missing Rich: An Application to Wealth Survey Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(4), pages 605-627, December.
    10. David Seim, 2017. "Behavioral Responses to Wealth Taxes: Evidence from Sweden," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 395-421, November.
    11. Sergio Ocampo & Gueorgui Kambourov & Daphne Chen & Burhanettin Kuruscu & Fatih Guvenen, 2017. "Use It or Lose It: Efficiency Gains from Wealth Taxation," 2017 Meeting Papers 913, Society for Economic Dynamics.
    12. Thomas Blanchet & Juliette Fournier & Thomas Piketty, 2022. "Generalized Pareto Curves: Theory and Applications," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(1), pages 263-288, March.
    13. Saez, Emmanuel & Stantcheva, Stefanie, 2018. "A simpler theory of optimal capital taxation," Journal of Public Economics, Elsevier, vol. 162(C), pages 120-142.
    14. Stefan Ederer & Miriam Rehm, 2021. "Wealth inequality and aggregate demand," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 405-424, May.
    15. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    16. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2016. "Taxing Wealth: Evidence from Switzerland," CESifo Working Paper Series 5966, CESifo.
    17. Kristian S. Nielsen & Kimberly A. Nicholas & Felix Creutzig & Thomas Dietz & Paul C. Stern, 2021. "The role of high-socioeconomic-status people in locking in or rapidly reducing energy-driven greenhouse gas emissions," Nature Energy, Nature, vol. 6(11), pages 1011-1016, November.
    18. Yannick Oswald & Anne Owen & Julia K. Steinberger, 2020. "Publisher Correction: Large inequality in international and intranational energy footprints between income groups and across consumption categories," Nature Energy, Nature, vol. 5(4), pages 349-349, April.
    19. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    20. Philip Vermeulen, 2016. "Estimating the Top Tail of the Wealth Distribution," American Economic Review, American Economic Association, vol. 106(5), pages 646-650, May.
    21. Laurent Bach & Laurent E. Calvet & Paolo Sodini, 2020. "Rich Pickings? Risk, Return, and Skill in Household Wealth," American Economic Review, American Economic Association, vol. 110(9), pages 2703-2747, September.
    22. Apostel, Arthur & O'Neill, Daniel W., 2022. "A one-off wealth tax for Belgium: Revenue potential, distributional impact, and environmental effects," Ecological Economics, Elsevier, vol. 196(C).
    23. Vivien Fisch-Romito & Céline Guivarch, 2019. "Transportation infrastructures in a low carbon world: An evaluation of investment needs and their determinants," Post-Print hal-02131954, HAL.
    24. Costanza, Robert, 1989. "What is ecological economics?," Ecological Economics, Elsevier, vol. 1(1), pages 1-7, February.
    25. Yannick Oswald & Anne Owen & Julia K. Steinberger, 2020. "Large inequality in international and intranational energy footprints between income groups and across consumption categories," Nature Energy, Nature, vol. 5(3), pages 231-239, March.
    26. Philip Vermeulen, 2018. "How Fat is the Top Tail of the Wealth Distribution?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(2), pages 357-387, June.
    27. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    28. Carsten Schröder & Charlotte Bartels & Konstantin Göbler & Markus M. Grabka & Johannes König, 2020. "Millionaires under the Microscope: Data Gap on Top Wealth Holders Closed: Wealth Concentration Higher than Presumed," DIW Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 10(30/31), pages 313-322.
    29. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    30. Theine, Hendrik & Humer, Stefan & Moser, Mathias & Schnetzer, Matthias, 2022. "Emissions inequality: Disparities in income, expenditure, and the carbon footprint in Austria," Ecological Economics, Elsevier, vol. 197(C).
    31. Alexander Krenek & Margit Schratzenstaller, 2018. "A European Net Wealth Tax," WIFO Working Papers 561, WIFO.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Spencer Bastani & Daniel Waldenström, 2020. "How Should Capital Be Taxed?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 812-846, September.
    2. Florian Scheuer & Joel Slemrod, 2021. "Taxing Our Wealth," Journal of Economic Perspectives, American Economic Association, vol. 35(1), pages 207-230, Winter.
    3. Rafael Wildauer & Stuart Leitch & Jakob Kapeller, 2021. "A European Wealth Tax for a Fair and Green Recovery," ICAE Working Papers 129, Johannes Kepler University, Institute for Comprehensive Analysis of the Economy.
    4. Kapeller, Jakob & Leitch, Stuart & Wildauer, Rafael, 2021. "A European wealth tax for a fair and green recovery," Greenwich Papers in Political Economy 31442, University of Greenwich, Greenwich Political Economy Research Centre.
    5. Thomas Blanchet, 2022. "Uncovering the Dynamics of the Wealth Distribution," Working Papers hal-03865295, HAL.
    6. Apostel, Arthur & O'Neill, Daniel W., 2022. "A one-off wealth tax for Belgium: Revenue potential, distributional impact, and environmental effects," Ecological Economics, Elsevier, vol. 196(C).
    7. Sarah Perret, 2021. "Why were most wealth taxes abandoned and is this time different?," Fiscal Studies, John Wiley & Sons, vol. 42(3-4), pages 539-563, September.
    8. Katrine Jakobsen & Kristian Jakobsen & Henrik Kleven & Gabriel Zucman, 2020. "Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark," The Quarterly Journal of Economics, Oxford University Press, vol. 135(1), pages 329-388.
    9. Alexander Krenek & Margit Schratzenstaller, 2018. "A European Net Wealth Tax," WIFO Working Papers 561, WIFO.
    10. Fisman, Raymond & Gladstone, Keith & Kuziemko, Ilyana & Naidu, Suresh, 2020. "Do Americans want to tax wealth? Evidence from online surveys," Journal of Public Economics, Elsevier, vol. 188(C).
    11. Waldenstrom, Daniel & Bastani, Spencer, 2018. "How Should Capital Be Taxed? Theory and Evidence from Sweden," CEPR Discussion Papers 12880, C.E.P.R. Discussion Papers.
    12. Alexander Krenek & Margit Schratzenstaller & Klaus Grünberger & Andreas Thiemann, 2022. "INTAXMOD – Inheritance and Gift Taxation in the Context of Ageing," WIFO Working Papers 645, WIFO.
    13. Thor O Thoresen & Marius A K Ring & Odd E Nygård & Jon Epland, 2022. "A Wealth Tax at Work [Behavioural Responses to a Wealth Tax]," CESifo Economic Studies, CESifo, vol. 68(4), pages 321-361.
    14. Elin Halvorsen & Thor O. Thoresen, 2021. "Distributional Effects of a Wealth Tax under Lifetime‐Dynastic Income Concepts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 184-215, January.
    15. Emmanuel Saez & Gabriel Zucman, 2019. "Progressive Wealth Taxation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(2 (Fall)), pages 437-533.
    16. Karl Schulz, 2021. "Redistribution of Return Inequality," CESifo Working Paper Series 8996, CESifo.
    17. Chirvi, Malte & Schneider, Cornelius, 2020. "Preferences for wealth taxation: Design, framing and the role of partisanship," arqus Discussion Papers in Quantitative Tax Research 260, arqus - Arbeitskreis Quantitative Steuerlehre.
    18. Stefanie Stantcheva, 2020. "Dynamic Taxation," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 801-831, August.
    19. Eddy Zanoutene, 2023. "Scale‐dependent and risky returns to savings: Consequences for optimal capital taxation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(3), pages 532-569, June.
    20. Reichlin, Pietro & Borri, Nicola, 2018. "Wealth Taxes and Inequality," CEPR Discussion Papers 13067, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Green infrastructure; Green investment gap; Wealth taxation;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:209:y:2023:i:c:s092180092300112x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.