Wealth Taxation and Wealth Accumulation: Theory and Evidence from Denmark

75 Pages Posted: 6 Mar 2018

See all articles by Katrine Jakobsen

Katrine Jakobsen

University of Copenhagen

Kristian Jakobsen

Den Sociale Kapitalfond

Henrik Kleven

Princeton University - Woodrow Wilson School of Public and International Affairs

Gabriel Zucman

University of California, Berkeley - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

Using administrative wealth records from Denmark, we study the effects of wealth taxes on wealth accumulation. Denmark used to impose one of the world’s highest marginal tax rates on wealth, but this tax was drastically reduced and ultimately abolished between 1989 and 1997. Due to the specific design of the wealth tax, these changes provide a compelling quasi-experiment for understanding behavioral responses among the wealthiest segments of the population. We find clear reduced-form effects of wealth taxes in the short and medium run, with larger effects on the very wealthy than on the moderately wealthy. We develop a simple lifecycle model with utility of residual wealth (bequests) allowing us to interpret the evidence in terms of structural primitives. We calibrate the model to the quasi-experimental moments and simulate the model forward to estimate the long-run effect of wealth taxes on wealth accumulation. Our simulations show that the long-run elasticity of wealth with respect to the net-of-tax return is sizeable at the top of distribution. Our paper provides the type of evidence needed to assess optimal capital taxation.

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Suggested Citation

Jakobsen, Katrine and Jakobsen, Kristian and Kleven, Henrik and Zucman, Gabriel, Wealth Taxation and Wealth Accumulation: Theory and Evidence from Denmark (March 2018). NBER Working Paper No. w24371. Available at SSRN: https://ssrn.com/abstract=3134268

Katrine Jakobsen (Contact Author)

University of Copenhagen

Nørregade 10
Copenhagen, DK-1165
Denmark

Kristian Jakobsen

Den Sociale Kapitalfond ( email )

Vester Voldgade 108
København, 1552
Denmark

Henrik Kleven

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Gabriel Zucman

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

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