Paraísos Fiscales, Wealth Taxation, and Mobility

Abstract

This paper analyzes the effect of decentralized wealth taxation on mobility and the consequences for tax revenue and wealth inequality. Using linked administrative data, we exploit the decentralization of the Spanish wealth tax -- after which all regions except Madrid levied positive tax rates. By five years after the reform, the stock of wealthy individuals in Madrid increases by 9%, while smaller tax differentials between other regions do not matter. A theoretical model of evasion and migration rationalizes evasion as the dominant mechanism. Although the tax haven reduces the effectiveness of raising revenue and exacerbates regional wealth inequalities, our results imply that decentralized wealth taxation is feasible in the short-run. Counterfactual exercises show that federal interventions, such as minimum tax rates, can improve the effectiveness of decentralized wealth taxation.