The Wealth Tax and Household Savings in the OECD: Implications for France

Abstract

The theoretical and empirical economic literature examining the connection between individual net wealth taxes and household savings rates is nascent and inconclusive. Earlier papers argued for the inefficiency of taxes on capital, while some more recent empirical papers have contended that wealth taxes do not adversely affect savings incentives. We contribute to this literature by studying the effect of wealth taxes on household savings rates across 22 OECD countries from 1990 to 2016. We use a time- and country-specific fixed effects panel data model; we find that a reduction in wealth tax proceeds is associated with a significant increase in household savings rates. Our results are robust to the selection of different control variables, modified data sets, alternative model specifications, and assumptions of endogeneity. These findings have significant implications for France, which recently abolished the Impôt de solidarité sur la fortune. If our results are correct, we would expect France, ceteris paribus, to see a marked increase in household savings rates over the coming years.