Marius Brülhart, Jonathan Gruber, Matthias Krapf, Kurt Schmidheiny 23 December 2019

In many developed nations, the capital share of income has been rising, with an associated increase in inequality. This has renewed interest among both academics and policymakers in taxing wealth. 

Piketty et al. (2013) proposed the adoption of an ‘ideal’ combination of taxes on capital, covering annual taxes on net worth and capital income, and bequests. Saez and Zucman (2019b) have advocated the introduction of a US wealth tax.

In the US, presidential candidates Elizabeth Warren and Bernie Sanders both advocate the introduction of a federal wealth tax. In Germany, the Social Democrats adopted the reintroduction of the wealth tax as one of their central policy objectives in 2019. And in France, President Macron’s decision to replace the French wealth tax by a property tax in 2017 helped trigger the gilets jaunes protests.

The elasticity of the wealth tax base

Arguments for and against wealth taxes invariably depend on behavioural responses – an academic term described much more evocatively by others. Jean-Baptiste Colbert, French Minister of Finances from 1665 to 1683, said that the art of taxation “consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing”. The title of Ayn Rand’s novel Atlas Shrugged (1957) describes the strike of a fictional group of capitalists to excessive taxation. In 1974, Denis Healy, The British Chancellor of the Exchequer, promised in a speech to “squeeze property speculators until the pips squeak”.

Whether the response is to hiss, shrug, or squeak, the stronger the behavioural responses to a tax, the greater its likely distortionary effects. The tax will also be ‘leakier’, and raise less revenue. The elasticity of the wealth tax base is therefore an important policy parameter.

Reactions to more common forms of taxation have been studied in depth, but behavioural responses to wealth taxes have only recently become a focus of academic research.1 The comparative neglect is likely because among OECD countries, only Norway, Spain, and Switzerland still levy a wealth tax that covers real estate as well as financial wealth. Researchers don’t have a strong motive to investigate the effect of wealth taxes, or an empirical setting to do it.

Resurgent policy interest in wealth taxes, however, has inspired a wave of empirical work on the topic. Researchers have exploited individual-level data in countries that either still levy wealth taxes, or abolished them recently. Most studies estimate of the semi-elasticity of taxable wealth, with respect to a one percentage-point change in a wealth tax. Saez and Zucman (2019a) claimed this research implies a representative semi-elasticity of 8%, which they employed to score Senator Warren’s wealth tax proposal.

We summarise the main published elasticity estimates in Table 1.

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Table 1 Estimates of the semi-elasticity of reported wealth relative to a 1 percentage-point increase in the wealth tax

Researchers have followed two empirical approaches:

  • Bunching. Seim (2017) and Londoño-Vélez and Ávila-Mahecha (2019) analyse bunching of reported wealth at discontinuities in tax schedules. This approach yields small elasticity estimates, but it probably underestimates behavioural responses because changes in wealth depend on asset prices that are uncertain and exogenously determined. 
  • Diff-in-diff. Zoutman (2018) Jakobsen et al. (2019), and Durán-Cabré et al. (2019) used difference-in-difference analyses of changes in wealth tax rates, comparing taxpayers who are affected differently by these changes for reasons that are arguably unrelated to their subsequent responses. These studies find responses that are an order of magnitude larger than the bunching analyses. Semi-elasticities range from 14% to 32%.

Elastic wealth in Switzerland

Switzerland is the most promising laboratory for studying the effects of wealth taxes. Swiss wealth taxes account for 3.6% of tax revenue, by far the highest level in the OECD. Switzerland is different also because its wealth tax schedules have very low exemption thresholds by comparison with other countries, and because there is no federal wealth tax wealth. The taxes are raised at the cantonal and municipal level.

This mean there is intra-national variation across jurisdictions, and over time. In a recent paper (Brülhart et al. 2019), we study taxable wealth by canton between 2003 and 2015. This was a period in which there were many canton-level tax reforms, so we are able to track the aggregate responses of wealth holdings to rich longitudinal variation in wealth tax levels. 

Reported wealth holdings in Switzerland have been very responsive to wealth taxation. Figure 1 shows how the log of taxable wealth in a canton evolves in response to a drop in the wealth tax rate. According to our baseline estimate, a 1 percentage point drop in the top wealth tax rate raises reported wealth by 43%. This estimate is identified by all tax changes in the data, many of which are small. But when we focus on the largest canton-level tax reforms, we find semi-elasticities close to 100%. 

Figure 1 Cumulative response of taxable wealth to a decrease in the wealth tax

Source: Brülhart et al. (2019).
Notes: Distributed-lag cumulative effects estimated through a first-differences panel model on canton-year data. Effects can be interpreted as the percentage response of aggregate taxable wealth to a 1 percentage point reduction in the canton wealth tax rate.

This finding is robust to variations of the empirical model. It appears fairly constant throughout the wealth distribution. Even the largest observed responses do not seem to have implied Laffer revenue effects: raising wealth tax rates still increases revenues.

The Swiss setting means we can dissect these aggregate responses. We analysed individual-level tax records from two cantons: Lucerne and Bern. Lucerne cut its wealth tax by half in 2009, whereas Bern adopted a modest reform. The difference between the policies can be considered quasi-random, as it depended on a marginal decision against a larger reform in Bern that was made possible by a direct-democratic instrument that exists in Bern, but not in Lucerne.

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Figure 2 shows cumulative wealth growth in Lucerne relative to Bern before and after the tax cut of 2009. There is no pre-trend prior to the reform, but wealth growth in Lucerne clearly exceeded wealth growth in Berne after Lucerne’s tax cut. By 2015, cumulative wealth growth in Lucerne exceeded wealth growth in Bern by 40%. Figure 2 also shows that nearly a quarter of this excess wealth growth comes from net-inmovers into Lucerne, and a quarter of this moving margin is due to international moves.

Figure 2 Cumulative response of taxable wealth to a decrease in the wealth tax

Source: Brülhart et al. (2019).
Notes: The graph shows cumulative differential changes in wealth of Lucerne relative to Bern, scaled to differential wealth in 2008. It also shows the contributions to the total effect by net intra-national and international taxpayer moves, in the year of moving.

Considering the size of Lucerne – smaller in both area and population than Luxembourg or any US state – it is perhaps striking that only a quarter of the tax-base response is attributable to mobility. Most of the increase in the tax base comes from the responses of taxpayers who are already resident in Lucerne.

We can decompose the remainder of the aggregate response: 

  • 6% of the response can be attributed to increased savings (including a mechanical effect of lower wealth taxation), 
  • 20% can be attributed to capitalisation into housing prices, and
  • 50% can be attributed to changes in the taxable financial assets of immobile taxpayers. 

Much (if not all) of the response from increased declared financial assets by non-movers is probably linked to avoidance and evasion behaviour. Financial wealth in Switzerland is self-reported, and banking secrecy is alive and well. When we analyse bunching at tax discontinuities, we also find stronger responses in Switzerland than those reported elsewhere. This is consistent with evasion behaviour.

Different settings, different elasticities

Our research suggests that wealth taxes are leakier in Switzerland than elsewhere, for two plausible reasons. 

First, Swiss cantons are small. This makes it easier for taxpayers to move around, and that creates 25% of the aggregate response to changes in wealth taxation. Another 20% of the response is due to capitalisation into housing prices, which is an indirect effect of mobility. A quarter of the mobility effect is international, so we can conclude that some 34% of the aggregate response are due to residents moving within the country.

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Second, tax enforcement in Switzerland is comparatively lax. Financial wealth is self-reported. About 50% of the aggregate response is due to changes in reported financial assets of non-movers. Evidence does not suggest that this is due to changed savings or earnings.

So up to 85% of the large responses of taxable wealth observed in Swiss cantons could therefore be the result of the small size of cantons, and of lax enforcement. If we reduce our estimated responses by 85%, we obtain elasticities that are actually lower than those found elsewhere (Table 1), and Saez and Zucman’s (2019a) assumed semi-elasticity of 8% for scoring a US wealth tax turns out to be consistent with our estimates – provided evasion opportunities in the US are as limited as they assume. 

We do not know, however, whether the avoidance options available in Switzerland mitigate ‘real’ responses through savings and labour supply. Avoidance could, to some extent, act as a substitute for real responses. We also do not know for sure what the response would be to wealth taxes of up to 6%, as proposed in the US. The top wealth tax rate in Switzerland is 1%, and the halving of wealth taxes in Lucerne that informs our decomposition estimates implied a drop in the tax rate of 0.28 percentage points.

Our research shows that flaws in the design of wealth taxation can lead to large avoidance responses. Enforcement is key.


Brülhart, M, J Gruber, M Krapf, and K Schmidheiny (2019), “Behavioral Responses to Wealth Taxes: Evidence from Switzerland”, CEPR discussion paper 14054.

Durán-Cabré, J M, A Esteller-Moré, and M Mas-Montserrat (2019), “Behavioral Responses to the (Re)introduction of Wealth Taxes. Evidence from Spain”, Institut d’Economia de Barcelona working paper 2019/04.

Jakobsen, K, K Jakobsen, H Kleven, and G Zucman (2019), “Wealth Taxation and Wealth Accumulation: Theory and Evidence from Denmark”, Quarterly Journal of Economics, forthcoming.

Londoño-Vélez, J and J Ávila-Mahecha (2019), “Can Wealth Taxation Work in Developing Countries? Quasi-Experimental Evidence from Colombia”, Mimeo, UC Berkeley.

Piketty, T, E Saez, and G Zucman (2013), “Rethinking Capital and Wealth Taxation”, Mimeo, Paris School of Economics.

Saez, E, J Slemrod, and S H Giertz (2012), “The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review”, Journal of Economic Literature, 50(1): 3–50.

Saez, E and G Zucman (2019a), “How Would a Progressive Wealth Tax Work? Evidence from the Economics Literature”, Mimeo, UC Berkeley.

Saez, E and G Zucman (2019b), “Progressive Wealth Taxation”, Brookings Papers on Economic Activity, forthcoming.

Seim, D (2017) “Behavioral Responses to Wealth Taxes: Evidence from Sweden”, American Economic Journal: Economic Policy 9(4): 395–421.

Zoutman, F T (2018), “The Elasticity of Taxable Wealth: Evidence from the Netherlands”, Mimeo, Norwegian School of Economics.


[1] For a survey of research on behavioural responses to income taxation, see Saez et al. (2012).