Paraísos Fiscales, Wealth Taxation, and Mobility

71 Pages Posted: 21 Aug 2020 Last revised: 6 Jun 2021

See all articles by David R. Agrawal

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration; University of Kentucky - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Dirk Foremny

University of Barcelona - Institut d'Economia de Barcelona (IEB) ; CESifo (Center for Economic Studies and Ifo Institute)

Clara Martínez-Toledano

Columbia Business School - Economics Department; World Inequality Lab; Imperial College London - Accounting, Finance, and Macroeconomics

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Date Written: August 16, 2020

Abstract

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

Suggested Citation

Agrawal, David R. and Foremny, Dirk and Martínez-Toledano, Clara, Paraísos Fiscales, Wealth Taxation, and Mobility (August 16, 2020). Available at SSRN: https://ssrn.com/abstract=3676031 or http://dx.doi.org/10.2139/ssrn.3676031

David R. Agrawal (Contact Author)

University of Kentucky - James W. Martin School of Public Policy and Administration ( email )

433 Patterson Office Tower
Lexington, KY 40506-0027
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HOME PAGE: http://www.uky.edu/~drag222/

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.uky.edu/~drag222/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany

HOME PAGE: http://www.uky.edu/~drag222/

Dirk Foremny

University of Barcelona - Institut d'Economia de Barcelona (IEB) ( email )

c/ John M. Keynes, 1-11
Barcelona, 08034
Spain

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Clara Martínez-Toledano

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

World Inequality Lab ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

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