Paraísos Fiscales, Wealth Taxation, and Mobility
71 Pages Posted: 21 Aug 2020 Last revised: 6 Jun 2021
Date Written: August 16, 2020
This paper analyzes the effect of decentralized wealth taxation on mobility and the consequences for tax revenue and wealth inequality. Using linked administrative data, we exploit the decentralization of the Spanish wealth tax -- after which all regions except Madrid levied positive tax rates. By five years after the reform, the stock of wealthy individuals in Madrid increases by 9%, while smaller tax differentials between other regions do not matter. A theoretical model of evasion and migration rationalizes evasion as the dominant mechanism. Although the tax haven reduces the effectiveness of raising revenue and exacerbates regional wealth inequalities, our results imply that decentralized wealth taxation is feasible in the short-run. Counterfactual exercises show that federal interventions, such as minimum tax rates, can improve the effectiveness of decentralized wealth taxation.
Keywords: Fiscal Decentralization, Fiscal Federalism, State and Local Taxation, Wealth Taxes, Mobility, Inequality, Tax Havens, Evasion
JEL Classification: E21, H24, H31, H73, J61, R23
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