Distributional Effects of the Wealth Tax under a Lifetime-Dynastic Income Concept

Recent books by Thomas Piketty (Piketty, 2014) and Anthony Atkinson (Atkinson, 2015) have brought the annual wealth tax back on the policy agenda. Both authors suggest using the annual wealth tax to supplement the redistributional effects of the income tax, assigning it a role as a redistributional backstop mechanism. However, when measured against annual income, the wealth tax is often not delivering the expected effects – a large share of the tax burden falls on people with low income. We argue that instead of using yearly income, one should measure wealth tax burdens with respect to individual lifetime income in family dynasties. Using rich Norwegian administrative data, we describe how a lifetime-dynastic income concept can be established. Under our preferred income concept, the wealth tax shows advantageous distributional effects – it represents a clear redistributional supplement to the income tax and is overall progressive in income.