Paraísos Fiscales, Wealth Taxation, and Mobility

EB Working Paper N. 2020/15

91 Pages Posted: 20 Mar 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: December 18, 2020

Abstract

This paper analyzes the effect of wealth taxation on mobility and the consequences for tax revenue and wealth inequality. We exploit the unique decentralization of the Spanish wealth tax system in 2011—after which all regions levied positive tax rates except for Madrid—using linked administrative wealth and income tax records. We find that five years after the reform, the stock of wealthy individuals in the region of Madrid increases by 10% relative to other regions, while smaller tax differentials between other regions do not matter for mobility. We rationalize our findings with a theoretical model of evasion and migration, which suggests that evasion is the mechanism most consistent with all of the mobility response being driven by the paraíso fiscal. Combining new subnational wealth inequality series with our estimated elasticities, we show that Madrid’s status as a tax haven reduces the effectiveness of raising tax revenue and exacerbates regional wealth inequalities.

Keywords: Wealth Taxes, Mobility, Inequality, Enforcement, Fiscal Decentralization, 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 (December 18, 2020). EB Working Paper N. 2020/15, Available at SSRN: https://ssrn.com/abstract=3785906 or http://dx.doi.org/10.2139/ssrn.3785906

David R. Agrawal

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

433 Patterson Office Tower
Lexington, KY 40506-0027
United States
859-257-8608 (Phone)

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 )

Poschinger Str. 5
Munich, DE-81679
Germany

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

Dirk Foremny (Contact Author)

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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