Working Paper: CEPR ID: DP350
Authors: Barry Eichengreen
Abstract: This paper shows how in theory, if the contingencies in response to which it is imposed are fully anticipated, independently verifiable and not under government control, then saving and investment should not fall following the imposition of a capital levy. Nor should the government find it more difficult to raise revenues subsequently, even if its non-recurrence cannot be guaranteed. In practice, however, serious problems stand in the way of implementation. Property owners are sure to delay its adoption and engage in capital flight, reducing the prospective yield and allowing the special circumstances providing the justification for the levy to recede into the past.
Keywords: capital taxation; capital flight; political opposition
JEL Codes: 322; 400
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital levy (E22) | saving and investment (E22) |
| conditions understood and verifiable (C62) | capital levy does not negatively impact saving and investment (E22) |
| political opposition (D72) | effectiveness of capital levy (F38) |
| capital flight (F21) | effectiveness of capital levy (F38) |
| delays in implementation (D78) | capital flight (F21) |
| capital flight (F21) | levy’s yield (E43) |
| political impediments (D72) | economic benefits of capital levies (E25) |
| successful levy during foreign occupation (N44) | minimized political resistance (P26) |