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Finally caught up with the wealth tax literature. A great starting point is this recent @voxeu column by @Marius_Brulhart @jonathangruber1 @MatthiasKrapf @unibas_metrics.

Trying to contribute to the public good that is #econtwitter, a short thread. 1/10

Column is based on their recently updated working paper in which they exploit wealth tax reforms in Switzerland (OECD country with highest share of wealth tax revenue) to estimate semi-elasticity of taxable wealth. 2/10

Ungated version: hec.unil.ch/mbrulhar/paper…
Using a variety of subnational wealth tax changes, they estimate that a 1 p.p. drop in wealth tax rate raises reported wealth by 43%! Authors do offer a story why their semi-elasticity is higher than other estimates in literature, which I will come back to in a minute. 3/10
In addition, they decompose the change in reported wealth using micro-level tax records from 2 cantons. Their findings suggest that 24% of reaction is attributable to mobility, 20% to capitalization into housing prices, and 6% to increased savings (incl. mechanical effect). 4/10
This leaves an unexplained residual of about 50% that is attributable to changes in wealth reported by resident taxpayers! Since there is no third-party reporting in Switzerland, these changes are likely linked to avoidance and evasion behavior. 5/10
The authors provide an overview of semi-elasticity estimates in the literature (incl. work by @SeimSeim @juliana_londono @katr_jakobsen @aestellermore) and argue that their results are in line with representative estimate of 8% assumed by Saez and @gabriel_zucman. 6/10
Two main reasons:
1. Cantons are small what enables high taxpayer mobility. Adding up direct and indirect (capitalization) mobility effects (and subtracting international mobility which accounts for one quarter) suggests 34% of response is due to intra-national mobility. 7/10
2. Tax enforcement is weak as wealth is self-reported (remember, 50% of changes are linked to underreporting).

Together, these “Swiss peculiarities” account for 85% of aggregate response. If you mentally adjust their estimate accordingly, it certainly fits in with the lit. 8/10
Note that mentioned 8% are derived as avg. of 3 bunching estimates (Seim; Londoño-Velez/Ávila-Mahecha; Jakobsen et al.) – which are much lower than longer-run diff-in-diff estimates – and Brülhart et al. Comparison might not be too meaningful anyway. 9/10

Bottom line: Tax enforcement is crucial. Caveats: In Switzerland, avoidance might have acted as substitute for real responses. Additionally, the analyzed wealth tax rate changes are rather small and nowhere near the levels proposed in the US. 10/10
If you prefer listening to reading, there is a short podcast @voxeu in which @Marius_Brulhart explains their paper. I really appreciate the authors’ efforts to make their research more accessible to policy makers and the public.

For more institutional context, check out these excellent pieces on the Swiss wealth tax that @MESandbu wrote for the @FT in early 2019.

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