We analyze behavioral responses to wealth taxation, estimating the causal effects of a unique municipal wealth tax reform in Norway. We exploit variation from the single-period municipal reform reducing the marginal tax rate (MTR) on wealth exclusively in the northern Norwegian municipality of Bø from 0.85% to 0.35%, since 2021. Mimicking the behaviour of a tax haven, Bø represents the first municipality to unilaterally reduce the municipal wealth tax rate since the establishment of wealth taxation in Norway in 1892. We document a significant 66.6% increase in average taxable wealth in response to a 1 percentage point drop in the wealth tax rate. The elasticity of taxable wealth increases to 71.6% when focusing exclusively on wealth taxpayers. We also estimate a significant but more modest 10.3% jump in the weighted mass of wealth taxpayers in the treated municipality. Non-real effects of the reform dominate: mobility of wealthy taxpayers appears as the major behavioral response to the change in the net tax rate, accounting for a staggering 79% of the post-treatment total net wealth in the treated municipality (up from 19% in the pre-reform period). These results emerge in a context with third-party reported wealth data with negligible measurement error, limited evidence of bunching, highly enforced residence-based wealth taxation, and a low degree of out-migration rates.
27 Marzo 2024, 12:00-13:00, Aula Marrama, Facoltà di Economia (VI piano)
https://wid.world/document/behavioral-responses-to-wealth-taxation-evidence-from-a-norwegian-reform-wid-world-working-paper-2023-30/