Behavioral responses to taxes

Behavioral responses to taxes

This project utilizes rich Norwegian administrative micro data and innovative methods to analyze behavioral responses to taxes in various settings.

prosjekt

About/Aims
Background

This project provides new insights for the international and national debates on how taxes and public support schemes (negative taxes) affect agents’ tax avoidance and tax evasion behavior, also in relation to inequality. 

More about the project

Norway is one of the very few countries that imposes an annual wealth tax, and the wealth tax is now increasingly on the international agenda and presented as one potential way to raise more tax revenue in light of the Covid-19 induced economic crises and to counter inequality. However, very little empirical research is done on the wealth tax. In this project, we analyze how the wealth tax affects employment and investments in closely held businesses, as well as how it affects individuals’ savings level and composition. We find that the wealth tax does not appear to negatively affect employment in small and medium sized family-owned businesses. The results received great media attention in the public debate during the autumn 2020, and renewed attention in the public debate leading up to the parliamentary election autumn 2021.  

Additionally, our work on the measurement of inequality have received renewed impact, regarding how the official statistics do not chapter large parts of the income of the richest. Since official statistics on inequality are based on information collected for tax purposes, this means that it only captures realized, and not actual income. The increased use of holding companies mean that it locks in income that previously would have been distributed to owners as dividends and no longer is visible on the individual owner’s tax return. These are results from a related previous project that we keep working on under the umbrella of the current project.  

As a response to the immediate economic crisis induced by the onset of the Covid-19 pandemic, we have shown how available historical register data can be utilized to simulate the effects of various government measures and support packages. We find that both Norwegian and US crisis packages have cut the potential negative impact of the crisis on firms in half, measured by the firms’ profitability, liquidity, and solidity. Assistance programs to cover wage costs were the most efficient crisis measure aimed at businesses, independent of whether it was given in the form of extended temporary unemployment benefits, as in Norway, or as wage bill support, as in the US.  

  • .

    .

    Photo
    shutterstock