DP14054 Behavioral Responses to Wealth Taxes: Evidence from Switzerland

Author(s): Marius Brülhart, Jonathan Gruber, Matthias Krapf, Kurt Schmidheiny
Publication Date: October 2019
Date Revised: October 2019
Keyword(s): Behavioral Responses, Switzerland, tax evasion, taxpayer mobility, Wealth Taxation
JEL(s): H24, H31, H73
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14054

We study how reported wealth responds to changes in wealth tax rates. Exploiting rich intra-national variation in Switzerland, the country with the highest revenue share of annual wealth taxation in the OECD, we find that a 1 percentage point drop in the wealth tax rate raises reported wealth by at least 43% after 6 years. Administrative tax records of two cantons with quasi-randomly assigned differential tax reforms suggest that 24% of the effect arise from taxpayer mobility and 20% from house price capitalization. Savings responses appear unable to explain more than a small fraction of the remainder, suggesting sizable evasion responses in this setting with no third-party reporting of financial wealth.