How Does a Net Wealth Tax Affect Overall Tax Collection?

The aim of this paper is to examine the conditions under which the increase in revenue that would resulting from the introduction of a net wealth tax and an exit tax would be offset by the loss of revenue from personal income tax and consumption tax due to tax-induced emigration. In the proposed model, wealth formation is endogenous and depends on income level, propensity to consumption and rate of return on investment. The paper finds that, for a given tax structure, the impact of the introduction of a net wealth tax on overall tax revenue is positive or negative depending mainly on two factors: (i) the distribution of taxpayers by income level, and (ii) the cost of adapting to the new tax residence, which determines the proportion of taxpayers who migrate. A numerical simulation is provided to approximate the magnitude of different impacts arising from of the introduction of the net wealth tax