A Harmonized Net Wealth Tax in the European Union

Alexander Krenek; Margit Schratzenstaller

doi:10.1515/jbnst-2021-0045

Abstract

While taxes on wealth for a long time played only a marginal role in the public finance and taxation literature, the increase of wealth inequality and concentration in many EU countries has spurred new interest in wealth taxation. At the same time, recurrent net wealth taxes have almost completely disappeared in Europe, inter alia due to fears of asset and taxpayer migration. The paper provides estimates of the revenue that could be raised from an EU-wide net wealth tax enabling the containment of migration responses, using data from the Household, Finance and Consumption Survey (HFCS). To account for differential non-response, we augment the HFCS with data from the Forbes rich list as well as national rich lists and replace the top tail of the wealth distribution according to the HFCS by an estimated Pareto distributed top tail. To account for under-reporting we scale aggregate financial assets in the HFCS to match their counterparts outlined in the National Accounts. We estimate that a moderately progressive net wealth tax levied at a rate of 1% on net wealth between € 1 and € 5 million, and 1.5% on wealth above € 5 million, could raise between € 165 and € 177 billion after accounting for avoidance and evasion responses. Such an EU harmonized net wealth tax would affect only a small fraction of households, ranging between 0.41% in Latvia and 8.65% in Belgium.

Keywords: net wealth tax; wealth taxation; rich lists; HFCS; top wealth holders

JEL Classification: D31; F55; H24; H26; H87

Corresponding author: Margit Schratzenstaller, Austrian Institute of Economic Research, Vienna, Austria, E-mail: margit.schratzenstaller@wifo.ac.at

We thank Andrea Sutrich and Cornelia Schobert for careful research assistance. We are also indebted to Wilfried Altzinger, Stefan Bach, Paul Eckerstorfer, Markus Loewe, Pirmin Fessler, Achim Truger and the participants of the FairTax Conferences in Vienna on September 19, 2016 (particularly Anna Iara) and in Brno on March 9 to 10, 2017 (particularly Ann Mumford) as well as the Public Sector Economics Conference 2019 in Zagreb on October 24, 2019 for helpful suggestions and comments as well as for advice concerning the data and estimations. Alexander Krenek is grateful to the hospitality of the German Institute of Economic Research (DIW) and especially to Stefan Bach, Andreas Thiemann and Aline Zucco for intensive discussions during a research stay in April and May 2017, from which the paper benefited considerably. Margit Schratzenstaller is grateful for exchanges particularly with Stefan Humer during a research stay at the Vienna University of Business and Economics in January 2020. We have received numerous valuable comments and suggestions from two anonymous referees and guest editor David Agrawal which improved the paper considerably.

Funding source: European Union’s Horizon 2020 research and innovation programme 2014–2020

Award Identifier / Grant number: Grant agreement No FairTax 649439

Research funding: The research leading to these results has received funding from the European Union’s Horizon 2020 research and innovation programme 2014–2020, grant agreement No. FairTax 649439.

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Article Note

This article is part of the special issue “Redistribution in a Globalized World” published in the Journal of Economics and Statistics. Access to further articles of this special issue can be obtained at www.degruyter.com/jbnst.

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The online version of this article offers supplementary material (https://doi.org/10.1515/jbnst-2021-0045).

Received: 2021-09-30

Accepted: 2022-09-16

Published Online: 2022-10-19

Published in Print: 2022-12-16

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