The Discussion Papers series presents results from ongoing research projects and other research and analysis by SSB staff, intended for international journals or books. The views and conclusions in this document are those of the author(s).
This study shows that raising tax revenue by taxing wealth is less costly than by taxing labor income within a simplified model framework designed for modest levels of taxes on capital income and wealth. The explanation is that a recidence based tax on wealth collects tax revenue from wealthy investors without distorting investments. The study also shows that raising tax revenue by increasing the tax rate on capital income marginally above the foreign tax level is less costly than by increasing the tax rate on labor income even though foreign investments is distorted. An assessment of these results together with other empirical and theoretical studies uncover that the cost of taxing capital income and wealth is likely to increase with the level of these taxes, however.