An exploration of the potential impact of various scenarios of wealth taxation and redistribution - ranging from moderate to radical - on wealth inequality from an international comparative perspective.
Extreme wealth inequality has been acknowledged as a growing social and political concern in many countries (Piketty, 2020). Perhaps unsurprisingly, then, policy proposals for reducing wealth inequality have recently also received increased attention, from a global wealth tax (Zucman, 2024) to proposals of baby bond programs (Hamilton & Darrity, 2010). What type of direct intervention into the wealth structure could substantially reduce wealth inequality in different countries? This contribution provides an initial descriptive account of the potential distributional impacts of different national wealth taxation and redistribution schemes for 15 countries. We estimate counterfactual national wealth distributions by simulating different types of annual wealth taxes as well as different approaches to redistributing the resulting revenue across the population.
Our initial results, based so far primarily on the cases of Germany and the United States, provide a relatively clear and provocative conclusion: Even when combined with ambitious direct redistribution schemes – such as universal wealth transfers or a Rawlsian allocation of the largest wealth transfers to the least wealthy – wealth taxes at common levels barely reduce wealth inequality and concentration. For such distributional impacts to arise, wealth taxes would have to be orders of magnitude greater than what has been observed in practice. In this sense, direct but low-level wealth taxation and redistribution does not appear to hold much promise in directly shaping the wealth distribution – unless we consider substantially more radical taxation schemes or fundamentally different redistribution schemes (such as the use of wealth tax revenue for welfare state investments).