Taxation of the rich and the cost of raising tax revenue
Working paper
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https://hdl.handle.net/11250/3075374Utgivelsesdato
2023-05Metadata
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Sammendrag
Taxation of capital income and wealth designed to redistribute from the rich may harm small
open economies with a globalized capital market as investments are distorted. This study shows
that raising tax revenue by taxing wealth is less costly than by taxing labor income within a
simplified model framework designed for modest levels of taxes on capital income and wealth.
The explanation is that a recidence based tax on wealth collects tax revenue from wealthy
investors without distorting investments. The study also shows that raising tax revenue by
increasing the tax rate on capital income marginally above the foreign tax level is less costly
than by increasing the tax rate on labor income even though foreign investments is distorted.
An assessment of these results together with other empirical and theoretical studies uncover
that the cost of taxing capital income and wealth is likely to increase with the level of these
taxes, however.