Abstract

http://ssrn.com/abstract=980223
 
 

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The Capital Levy in Theory and Practice


Barry Eichengreen


University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

October 1991

NBER Working Paper No. w3096

Abstract:     
A capital levy is a one-time tax on all wealth holders with the goal of retiring public debt. This paper reconsiders the historical debate over the capital levy in a contingent capital taxation framework. This shows how in theory the imposition of a levy can be welfare improving when adopted to redress debt problems created by special circumstances, even if its nonrecurrence cannot be guaranteed. If the contingencies in response to which the levy is imposed are fully anticipated, independently verifiable and not under government control, then saving and investment should not fall following the imposition of the levy, nor should the government find it more difficult to raise revenues subsequently. In practice, serious problems stand in the way of implementation. A capital levy has profound distribution consequences. Property owners are sure to resist its adoption. In a democratic society, their objections are guaranteed to cause delay. This provides an opportunity for capital flight, reducing the prospective yield, and allows the special circumstances providing the justification for the levy to recede in the past. The only successful levies occur in cases like post-World War II Japan, where important elements of the democratic process are suppressed and where the fact that the levy was imposed by an outside power minimized the negative impact on the reputation of subsequent sovereign governments.

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Date posted: April 14, 2007  

Suggested Citation

Eichengreen, Barry, The Capital Levy in Theory and Practice (October 1991). NBER Working Paper No. w3096. Available at SSRN: http://ssrn.com/abstract=980223

Contact Information

Barry Eichengreen (Contact Author)
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-2772 (Phone)
510-642-0822 (Fax)
National Bureau of Economic Research (NBER)
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Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
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United Kingdom
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