Behavioural responses to wealth taxation: evidence from a Norwegian reform

Abstract How do wealthy individuals respond to wealth‐tax reforms? We analyse behavioural responses to changes in wealth‐tax rates, estimating the causal effects of an unprecedented municipal reform in Norway. We leverage variation from the municipal reform reducing the marginal tax rate on wealth exclusively in the northern Norwegian municipality of Bø from 0.85 to 0.35 per cent, since 2021. Mimicking the behaviour of a tax haven, Bø represents the first municipality in Norway to reduce the municipal wealth‐tax rate since 1978. We document a significant increase of 45 per cent in average taxable wealth in response to a 1 percentage point drop in the wealth‐tax rate. We also estimate a significant but more modest jump of 4.8 per cent in the weighted mass of wealth‐tax payers in the treated municipality. Migration effects of the reform dominate: internal mobility of wealthy tax payers appears as the major behavioural response to the change in the net tax rate. While these effects are pronounced at the municipal level, they do not suggest a large‐scale exodus at the national level, indicating that migration to avoid wealth taxation is not an inevitable outcome of localised preferential tax regimes.