DP350 The Capital Levy in Theory and Practice

Author(s): Barry Eichengreen
Publication Date: November 1989
Keyword(s): Capital Flight, Capital Taxation, Government Spending
JEL(s): 322, 323, 411
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=350

This paper shows how in theory, if the contingencies in response to which it is imposed are fully anticipated, independently verifiable and not under government control, then saving and investment should not fall following the imposition of a capital levy. Nor should the government find it more difficult to raise revenues subsequently, even if its non-recurrence cannot be guaranteed. In practice, however, serious problems stand in the way of implementation. Property owners are sure to delay its adoption and engage in capital flight, reducing the prospective yield and allowing the special circumstances providing the justification for the levy to recede into the past.