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Wealth taxation, capital gains taxation and the inequality-mobility trade-off

Author

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  • van Langenhove, Christophe
  • Lorenz, Jan
  • Schulz-Gebhard, Jan

Abstract

We compare wealth taxes and capital gains taxes in a random growth model with idiosyncratic investment risk. At equal tax revenue, wealth taxes generate higher wealth inequality but also higher wealth mobility than capital gains taxes. The mechanism operates through variance: wealth taxes shift the mean of post-tax wealth growth without affecting variance, while capital gains taxes compress the upper tail and reduce variance. Lower variance compresses the stationary distribution, reducing wealth inequality, but also dampens rank changes, reducing wealth mobility. The variance effect dominates the fact that lower inequality shrinks the wealth gaps agents must overcome. Policymakers who value both low wealth inequality and high wealth mobility therefore face a trade-off. This trade-off is robust to type and scale dependence in returns, hand-to-mouth households, aggregate risk, and tax progressivity.

Suggested Citation

  • van Langenhove, Christophe & Lorenz, Jan & Schulz-Gebhard, Jan, 2026. "Wealth taxation, capital gains taxation and the inequality-mobility trade-off," BERG Working Paper Series 211, Bamberg University, Bamberg Economic Research Group.
    • Handle: RePEc:zbw:bamber:337495
    DOI: 10.20378/irb-112983
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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