IREF - Institut de Recherches Économiques et Fiscales
Pour la liberté économique et la concurrence fiscale
In his Logic of Collective Action, Mancur Olson argues convincingly that lobbying is more efficient where the policy which is the object of lobbying implies concentrated benefits (for the lobbying group) and widespread costs (to the rest of the population). Wealth tax seems, at first, to be a perfect counterexample to Olson’s claim : it is paid by only a small percentage of the population and is redistributed to a large number. This is one of the many striking aspects of wealth tax.
Another would be that some countries choose to increase the “progressivity” of taxation via the implementation of wealth taxes while, at the same moment, flat (and therefore proportional) taxes are adopted in many countries. IREF, the Institute for Research on Economic and Fiscal Issues, is happy to present the three winning essays of its 2006 annual contest. For this year, the proposed topic was precisely the nature and effects of wealth taxes and you will therefore find here three valuable reflections on this issue. Unsurprisingly for those who have some economics background, the three essays are highly critical of this form of taxation. But their authors do not stop at a general condemnation of wealth tax. They examine with great details its various, past and present, forms and offer thorough analysis of the many arguments advanced in the literature to support a wealth tax. Those arguments, as the reader will discover, are not always economic in nature. Indeed, besides exploring the (in)efficiency of wealth taxes (and, in particular, how it affects economic growth), it is essential to discuss its ethical and sociological dimensions. To quote Jan Schnellenbach, winner of this 2006 contest, there is “a long tradition of occidental political thought, with its long-endured antagonism between an appraisal of private property rights on the one hand, and a mistrust towards unequal distributions of material wealth and income on the other hand….Can we expect a net wealth tax to be an appropriate instrument to achieve such reconciliation ?” The following essays offer interesting answers to this pressing question. Through its contest essays, IREF wishes to serve two goals : to promote the work of young scholars and to make available to a larger public new research on taxation. It was the conviction of the jury that this double goal has been well served by the three following essays. Young students, laymen, but also confirmed scholars will find there precious arguments and references for a better understanding of wealth tax. I hope you will enjoy it. Pierre Garello Director of Research First prize - Jan Schnellenbach Abstract : This paper surveys possible motivations having a net wealth tax. After giving a short overview over the state of wealth taxation in OECD countries, we discuss both popular arguments for such a tax, as well as economic arguments. It is argued that classical normative principles of taxation known from public economics cannot give a sound justification for a net wealth tax. The efficiency-related effects are also discussed and shown to be theoretically ambiguous, while empirical evidence hints at a negative effect on GDP growth. Finally, it is argued that the existence of net wealth taxes is better explained with imperfections of collective decision-making than with economic rationality. Second prize - Philipp Bagus Abstract : Wealth taxes are portrayed as being fair, and a rather painless way to increase funding for strapped government programs. So then, why should we consider wealth taxes ? To what extent are these taxes a matter of justice and to what extent are these taxes a matter of economics ? Are wealth taxes harmful or helpful to an economy ? Are wealth taxes fair obligations belonging to the entrepreneur or unjust claims made by society ? To answer these questions we will proceed as follows : First, we will analyze the arguments given to justify wealth taxation. Then, we will analyze the effects of wealth taxes (i.e. taxes on accumulated capital) contrasted with the effects of income taxes. After this we will explore the effects of wealth taxes upon the economy, such as wealth transfer taxes, property taxes, net wealth taxes, and capital gains taxes. We will then conclude in determining whether we should consider wealth taxation as a viable approach to revenue. Third prize - Daniel Pellerin Abstract : When serial bank robber Willie Sutton was apprehended at last, someone asked him why he had robbed so many banks : “Because that’s where the money is,” Sutton famously replied. The idea of taxing wealth, whatever its merits, seems to suggest itself as naturally. One may well doubt whether it is wise or prudent to equate any form of taxation so casually with grand larceny ; less doubtful is the fact that both designs on the money of some by the ambitions of others are likely to end in disappointment. Adam Smith once came to the melancholy conclusion that “There is no art which one government sooner learns of another, than that of draining money from the pockets of the people.” If only governments were as ready to learn from each other’s failures...