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Wealth Taxation: The Key to Unlocking Capital Gains

Author

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  • Guttorm Schjelderup
  • Floris Zoutman

Abstract

This paper analyzes how a wealth tax affects investor portfolio choice when a realization-based capital gains tax is present. We develop a two-period model with heterogeneous investors and show that while a capital gains tax distorts portfolio choice by encouraging investors to postpone realization, a wealth tax can eliminate this distortion and enhance efficient portfolio choice. Our optimal-tax model balances the equity gains from both taxes against efficiency losses related to intertemporal and portfolio choice. We use the model to derive an elasticity-based criterion for empirically evaluating the desirability of a wealth tax.

Suggested Citation

  • Guttorm Schjelderup & Floris Zoutman, 2025. "Wealth Taxation: The Key to Unlocking Capital Gains," CESifo Working Paper Series 12254, CESifo.
    • Handle: RePEc:ces:ceswps:_12254
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp12254.pdf
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    Keywords

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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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