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Taxing the wealthy: the choice between wealth and capital income taxation

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  • Spencer Bastani
  • Daniel Waldenström

Abstract

This paper analyses the relative merits of wealth and capital income taxes as instruments for taxing the rich. The main rationale for a wealth tax is to address the incompleteness of the tax code in taxing unrealized capital gains, which can be enormous and concentrated among the wealthy. However, by taxing presumed rather than actual returns, a wealth tax fails to address inequality among taxpayers with the same wealth but different capital incomes. In addition, wealth taxation creates liquidity problems that may adversely affect growth firms and start-ups, which is why wealth taxes typically provide exemptions and deductions for certain business assets. Our empirical analysis, based on Swedish register data, describes the wealth composition of the wealthiest and assesses the distributional incidence of different combinations of wealth and capital income taxation.

Suggested Citation

  • Spencer Bastani & Daniel Waldenström, 2023. "Taxing the wealthy: the choice between wealth and capital income taxation," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(3), pages 604-616.
    • Handle: RePEc:oup:oxford:v:39:y:2023:i:3:p:604-616.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grad030
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    References listed on IDEAS

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