The wealth tax has been much debated in Norway. The opponents of the wealth tax have argued that since Norway is one of few countries in the world that imposes a tax on wealth, the tax increases the return on investments that Norwegian investors must require to make an investment profitable. Consequently, it is claimed that the wealth tax discourages ownership of Norwegian stocks and over time it triggers a sell-out of Norwegian firms to foreigners.

In a recently published paper in International Tax and Public Finance, Petter Bjerksund and Guttorm Schjelderup study this claim. The set up a model with a capital income tax and a wealth tax to see if the two taxes have different effects on investor behavior. They study how an untaxed investor (foreigner) and a Norwegian investor (facing a wealth tax and a capital gains tax) value a company’s stock (or a project) in an efficient international capital market. Using a variety of modelling frameworks to test conclusions, they show that a wealth tax and/or a capital income tax work in the same way and that the foreign and Norwegian investor have the same valuation of a stock or a project.

They then show that if Norwegian investors seek a higher pre-tax rate of return due to the wealth tax, they harm their own wealth. Their study has the implication that the wealth tax works in the same way as a tax on capital gains and that there is no reason to believe that the wealth tax has an adverse effect on investment behavior in an efficient capital market. They point out that all taxes affect the amount of income that can be invested in projects and that if foreigners have a lower burden of taxation, they can invest more. This begs the question of whom to compare with if we want to compete over disposable income.

Bjerksund, Petter, and Guttorm Schjelderup: Investor asset valuation under a wealth tax and a capital income tax, International Tax and Public Finance, Online 14.09.2021.

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