Taxing the Wealth of the Poor: Evidence from the Danish Old-Age Support Asset Test

Abstract

We document strong behavioral responses to an asset test for an old-age support program in Denmark using comprehensive administrative data. We show that the density distribution of the liquid assets targeted by the test exhibits large but diffuse excess mass below the threshold for the treated group relative to control groups of comparable but ineligible individuals. A cohort analysis exploiting the panel structure suggests that the program reduces liquid assets by 20 percent around the threshold. Analyzing high-frequency bank data on assets and cash withdrawals shows that the excess mass around the threshold largely reflects permanent rather than temporary responses.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.