Wealth Taxation and Household Saving: Evidence from Assessment Discontinuities in Norway

67 Pages Posted: 3 Dec 2020 Last revised: 13 Sep 2023

See all articles by Marius Alexander Kalleberg Ring

Marius Alexander Kalleberg Ring

University of Texas at Austin - Department of Finance; Statistics Norway - Research Department

Date Written: October 21, 2020

Abstract

While it is common to assume that wealth taxation has a negative effect on household saving, neither theory nor existing empirical evidence lends clear support. Theoretically, the effect is ambiguous due to opposing income and substitution effects, and empirically, the effect is challenging to discern because of misreporting responses. Using geographic discontinuities in the Norwegian annual net-wealth tax and third-party reported data on savings, I find that wealth taxation causes households to save more, and that this increase in saving is primarily financed by increased labor earnings. These responses are the combination of small negative effects of increasing the marginal tax rates on wealth and relatively larger positive effects of increasing average rates. These findings imply that income effects may dominate substitution effects in household responses to rate-of-return shocks, which has important implications for both optimal taxation and macroeconomic modeling.

Keywords: Wealth Taxes, Savings, Capital Taxation, Intertemporal Substitution, Household Finance

JEL Classification: G51, D14, D15, H20, H31, E21, J22

Suggested Citation

Ring, Marius Alexander Kalleberg, Wealth Taxation and Household Saving: Evidence from Assessment Discontinuities in Norway (October 21, 2020). Available at SSRN: https://ssrn.com/abstract=3716257 or http://dx.doi.org/10.2139/ssrn.3716257

Marius Alexander Kalleberg Ring (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway

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