Behavioral responses to wealth taxation: evidence from a Norwegian reform

Résumé 0

We analyze behavioral responses to wealth taxation, estimating the causal effects of a unique municipal wealth tax reform in Norway. We exploit variation from the singleperiod municipal reform reducing the marginal tax rate (MTR) on wealth exclusively in the northern Norwegian municipality of Bø from 0.85% to 0.35%, since 2021. Mimicking the behaviour of a tax haven, Bø represents the first municipality to unilaterally reduce the municipal wealth tax rate since the establishment of wealth taxation in Norway in 1892. We document a significant 66.6% increase in average taxable wealth in response to a 1 percentage point drop in the wealth tax rate. The elasticity of taxable wealth increases to 71.6% when focusing exclusively on wealth taxpayers. We also estimate a significant but more modest 10.3% jump in the weighted mass of wealth taxpayers in the treated municipality. Non-real effects of the reform dominate: mobility of wealthy taxpayers appears as the major behavioral response to the change in the net tax rate, accounting for a staggering 79% of the post-treatment total net wealth in the treated municipality (up from 19% in the pre-reform period). These results emerge in a context with third-party reported wealth data with negligible measurement error, limited evidence of bunching, highly enforced residence-based wealth taxation, and a low degree of out-migration rates.