BarcelonaIf the predictions had been correct, since 2022 there would not be a single millionaire left in Norway. In 2021, the Labour Party (centre-left) of the current prime minister, Jonas Gahr Store, won the parliamentary elections and entered into a coalition government with the Centre Party. The new executive approved a reform of the formuesskatt, the wealth tax, which increased what the country’s richest taxpayers pay.
Both in Norway and abroad, the headlines were not long in coming, and, despite some exceptions, they followed the same line as the criticisms of the conservative opposition: if the tax were raised, the wealthy would choose to move to another country, which would ultimately cause the Norwegian state to collect even less money than before. According to these arguments, it was better to have a low tax and collect something than a high tax and collect less.
Even one of the leading international newspapers for the left, the British The Guardian, joined the bandwagon of the mass exodus of Norwegian millionaires to other countries, especially Switzerland. “The super-rich are leaving Norway at a record rate due to a slight increase in the wealth tax,” the London newspaper headlined.
But, although there is a certain flight of large fortunes when new taxes are imposed or existing taxes targeting the wealthiest segments of the population are increased, the reality is that the example of Norway and two of its neighboring countries, Denmark and Sweden, indicates that mobility is usually notably lower than expected and the increases in revenue are significant.
But Switzerland is boring: fiscal migration and the attraction of specific local cultural capitalThe sharp increase in public revenue thanks to the reform of this tax indicates that the departure of the super-rich was relatively small, as the modifications to the tax did not touch the minimum wealth from which the tax must be paid, which remained at 1.7 million kroner (about 160,000 euros). In other words, the same people continued to pay it, and simply started paying more.
Taxing maximum wealth: migratory responses and their aggregate implicationsReduced mobility
According to Reuters, a total of 30 billionaires left Norway due to wealth tax. The figure aligns with various studies. “Prominent figures in the private sector often warn publicly that increasing taxes on the rich or those who earn more will cause them to leave the country, which will have negative impacts on the national tax base or the economy in general. However, despite these outcries, the evidence on tax-induced migration is more modest,” states an academic article titled But Switzerland’s boring: tax migration and the pull of place-specific cultural capital, written by four economists and published by Oxford Academic.
According to the authors, no matter how wealthy they are, individuals affected by these fiscal changes often prefer to pay more and continue living in their city or country rather than move elsewhere. Another academic article titled Taxing top wealth: migration responses and their aggregate implications, prepared by six economists for the National Bureau of Economic Research, the leading organization for economic research in the United States, points in the same direction: “A one percentage point increase in the top rate reduces the total number of wealthy taxpayers by approximately 2%.”
This article analyzes various similar tax changes in Sweden and Denmark. Nordic countries are particularly known for a social democratic tradition of wealth redistribution through fiscal policies that are based, on one hand, on very demanding tax regimes for high-income earners and those with large fortunes, and on the other hand, on high spending on public services such as healthcare, education, or social services. This usually places them among countries with the highest quality of life and the lowest levels of inequality.
Little effect on growth
According to this latest article, the negative effects of wealth taxes on other aspects of the economy are “quantitatively small”. Thus, “an increase of one percentage point in the top rate causes employment to fall by 0.02%, investment by 0.07%, and value added by 0.1%”. “These effects are modest, even though owners of larger fortunes, many of whom are entrepreneurs, represent a high proportion of economic activity in Scandinavia through the companies they control,” the document adds.
Nevertheless, the article argues that “the modest effects of tax-induced migration do not necessarily imply that taxing the rich is an optimal policy”. According to the economists’ calculations, beyond discussions of fairness, taxes applied to large fortunes improve the country’s welfare if the funds raised are used to finance policies with a high economic return, such as support programs for children from vulnerable families. This means, according to the article, that “financing projects for low-income children through progressive wealth taxation has the potential to increase social welfare”.