Marius Ring, Kellogg School of Management. "Wealth Taxation and Household Saving: Evidence from Assessment Discontinuities in Norway"
ESOP seminar. Marius Ring recently completed his Ph.D. in Finance at the Kellogg School of Management, Northwestern University. He will present the paper: "Wealth Taxation and Household Saving: Evidence from Assessment Discontinuities in Norway".
I use a quasi-experiment in Norway to examine how households respond to capital taxation. The introduction of a new wealth assessment methodology in 2010 led to geographic discontinuities in household exposure to wealth taxes, along both the extensive and intensive margins. I exploit this novel variation using rich administrative data and a Boundary Discontinuity approach. In contrast to existing work, I find that exposure to wealth taxes has a positive effect on saving as well as a positive effect on labor earnings. For each additional NOK subject to a 1 percent wealth tax, households increase their yearly financial saving by 0.04 NOK. This increase in saving is largely financed by increased labor earnings. My results imply that income effects may dominate substitution effects in household responses to (net-of-tax) rate-of-return shocks, which has important implications for both optimal capital taxation and macroeconomic modeling.