Here’s what we know about Thomas Piketty’s wealth capital tax

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A wealth tax could affect the economy in several ways, but it’s hard to know how. The limited evidence we have comes from the few countries where such taxes are already in place. When a country imposes a wealth tax, it gives people an incentive to hide their wealth in tax havens and invest abroad. This tax evasion reduces the efficiency of the tax and capital flight hurts economic growth. In a 2009 paper on wealth tax in France, Eric Pichet found evidence of these two effects. David Seim discovered that the Swedish wealth tax, which was abolished in 2007, also led to significant tax evasion.

Piketty’s tax would, in theory, avoid this problem because it would be global – there would be no safe haven where the rich could hide their wealth. To ensure compliance, Piketty would impose sanctions against tax havens. It is possible that the rich will then find other ways to evade taxes, and those ways could hurt the economy. In a Guest post to National examJames Wetzler argues that the super-rich will sell assets in order to pay taxes, which will decrease investment, productivity and eventually wages. Then again, it is also possible that such a tax will encourage investors to make more productive use of unused resources or to sell them to someone who will. According to this theory, investment would increase and the economy would actually grow faster.

Gabriel Zucman, professor of economics at UC Berkeley and frequent contributor to Piketty, does not envision that the wealth tax would have a significant effect on growth or investment, although he admits that he does there is little evidence for this. “There really isn’t a good empirical study on this issue,” Zucman said. “In theory, it can go in any direction. It could increase saving and investment or decrease saving and investment. In practice, it is very difficult to say. Zucman pointed out that the savings rate in the United States and the United Kingdom was the same in the 19e century as it is today, despite major differences in tax regimes in each period.


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