Behavioural Responses to the (Re)Introduction of Wealth Taxes. Evidence From Spain

Abstract

In the throes of economic crisis, the Spanish government decided to reintroduce the Wealth Tax, appealing to redistributive motives and its need for greater revenues. This paper studies how individuals reacted to the reintroduction of this tax by drawing on the universe of wealth tax returns submitted to the Catalan Tax Agency between 2011 and 2015. Thus, we exploit the variation in treatment exposure to analyse taxpayers' responses, in terms not only of wealth accumulation, but also of the potential avoidance strategies adopted. Indeed, our results reflect avoidance rather than real responses. They show that while facing higher wealth taxes did not have a negative effect on taxpayers' savings, it did encourage them to change their asset and income composition to take advantage of wealth tax exemptions (mostly business-related) and the existence of a limit on wealth tax liability. This translates into an elasticity of taxable wealth with respect to the net-of-tax rate of return of 0.64, or, put differently, a 0.1 percentage point increase in the average wealth tax rate leads to a reduction in taxable wealth of 3.24% over 4 years. Overall, these avoidance responses are quite marked in terms of tax revenues: they represent a 4-year accumulated revenue loss of 2.6 times the 2011 estimated wealth tax revenues. The existence of such responses mostly related to the design of the wealth tax has relevant policy implications not only in terms of revenues but also insofar as it undermines the tax's redistributive role.

Impuesto al patrimonio: una propuesta tributaria deficiente

“…El valor de la elasticidad de largo plazo del stock de capital es una pregunta netamente empírica. La mayoría de los estudios relacionados al impuesto al patrimonio que se han analizado estiman efectos de corto plazo (Brülhart et al 2020;Durán-Cabré et al 2019;Londoño-Velez y Ávila-Mahecha 2018;Seim 2017;Zoutman 2018), los que se acotan a un horizonte menor o igual a cinco años. Sin embargo, utilizando el caso de Dinamarca, Jakobsen et al (2020) proporciona una estimación de la elasticidad de largo plazo del stock de capital.…”

Behavioural responses to a wealth tax

“…Recent studies have provided a small number of estimates of the taxable wealth elasticity (Seim, 2017;Zoutman, 2018;Durán-Cabré, Esteller-Moré, and Mas-Montserrat, 2019;Jakobsen et al, 2019;Agrawal, Foremny and Martinez-Toledano, 2020;Londoño-Velez and Ávila-Mahecha, 2020;Ring, 2020). However, elasticities are not structural parameters, they vary across contexts and are sensitive to policy choices which are highly heterogeneous across countries (see Perret, 2020).…”

“…The use of third-party reporting of asset values (by financial institutions for example) is one influential factor (Kleven et al, 2011). The elasticity of taxable wealth is higher in Spain and Switzerland, where there is little or no third party reporting, than in Denmark, where most asset values are reported by third parties (Durán-Cabré, Esteller-Moré, and Mas-Montserrat, 2019;Jakobsen et al, 2020). This is not the only explanation for this difference, but as we describe in Section 4, taking account of tax design features can explain most of the difference in estimated elasticities.…”

Paraísos Fiscales, Wealth Taxation, and Mobility

“…This created additional delays over what each region's tax schedule would look like. In September 2012, the central government announced the extension of the wealth tax until 2013 and this procedure continues on annually (Durán-Cabré et al, 2019).…”