Is the Wealth Tax Harmful to Economic Growth?

After abolishing the wealth tax in a number of European countries during recent decades, increasing income and wealth inequality have spurred the discussion of reintroducing a wealth tax in a number of countries. This has refuelled the heated discussion in the popular press about the wealth tax’s merits and harmful effects. The academic community has been considerably quieter on the merits and disadvantages of the wealth tax, however. This paper attempts to fill this gap by empirically estimating the relationship between the wealth tax and economic growth in 20 OECD countries over the time period 1980-1999. Using an instrumental-variable approach and “differenced” data to control for two types of endogeneity, I find fairly robust support for the popular contention that wealth taxes dampen economic growth. The estimated magnitude, however, is somewhat less alarming than popular account.