An Imperfect Wealth Tax and Employment in Closely Held Firm
Link to article:
Authors:
Bjørneby, Marie, Simen Markussen, Knut Røed
Year:
2023
Reference:
Vol 90(358), 557-583Summary
Fuelled by increasing inequality and rising fiscal deficits, the interest in wealth taxation has grown over recent years, both in the public debate and in academia. A key concern is that the wealth tax may reduce the amount of capital available to closely held firms and drag down their employment. Yet knowledge about the behavioural effects of a wealth tax is limited. A wealth tax is almost by construction imperfect, as the value of some assets is unobserved. In particular, intangible assets held by non-traded firms are in practice tax-exempt, giving firm owners an incentive to allocate wealth into their businesses, for example, in the form of (untaxed) human capital investments. We utilize rich Norwegian register data and a series of tax reforms implemented between 2007 and 2017 to study how a net wealth tax imposed on owners of small and medium-sized businesses affects their firms' employment. Identification of causal effects is based on a saturated control function approach, fully isolating the influence of tax reforms. Our results indicate a positive causal relationship between the level of a household's wealth tax and subsequent employment growth in the taxpayers' closely held firms.
Project:
Oppdragsgiver: Norges ForskninsgrådOppdragsgivers prosjektnr.: 280350/GE
Frisch prosjekt: 1191 - The decline in employment and the rise of its social gradient
Oppdragsgiver: Nærings- og fiskeridepartementet
Oppdragsgivers prosjektnr.: NFD6974
Frisch prosjekt: 8391 - Wealth tax
