Wealth tax encourages movement of assets
Marie Bjørneby et al. 20 -- Marie Bjørneby: PhD student, Norwegian University of Life Sciences; Simen Markussen: research fellow, Norwegian labor economist; Knut Røed: Senior Research Fellow at the Ragnar Frisch Centre for Economic Research (“Does the Wealth Tax Kill Jobs?”, Institute of Labor Economics, 10-2020, https://docs.iza.org/dp13766.pdf, Date Accessed 7-5-2023) //TCM
If a firm is credit constrained – e.g., due to asymmetric information – the owner’s allocation of own economic resources into the firm becomes important for the firm’s development. A possible impact of a wealth tax then comes from two different sources. The first is that the wealth tax affects the taxpayer’s overall wealth accumulation. This effect is normally considered negative, both due to the tax payment itself and due to a negative substitution effect arising from the reduced returns on savings. However, there is also a positive income effect, arising from the need to save more today in order to pay for future taxes. If the income effect is sufficiently large and the substitution effect sufficiently small, a positive impact on overall after-tax wealth accumulation is possible, and, according to Ring (2020b), even empirically relevant. The second source of wealth tax influence comes through a portfolio composition effect: A higher wealth tax gives the taxpayer stronger incentives to place economic wealth into assets with lower tax-value relative to market-value. An unlisted firm serves this purpose, particularly if the added capital is used to expand employment.