When Wealth Taxes Don't Bite: Behavioral Responses to the Belgian Financial Wealth Tax

This paper studies the behavioural answers from taxpayers to a wealth tax on specific financial assets. Leveraging an unprecedented tax on the financially wealthiest individuals between 2018-2019 and a unique individual banking data, this paper provides the first scientific evidence on the answers to financial specific wealth tax. To do so, we employ three complementary bunching designs. The classical bunching method detects no significant bunching in 2017–2019. The advanced bunching method guarantees the absence of optimization frictions and shows that elasticity bounds for 2017 are highly sensitive to shape restrictions, whereas the bounds for 2018 (1.87–1.92) and 2019 (8.2–10.9) are more stable. However, estimates from the dynamic bunching approach indicate no significant reduction in the growth rate of taxable securities in any year, suggesting no behavioural response despite the elasticities obtained for 2018–2019. Overall, we find no evidence of statistically significant bunching behaviour in response to ATSA. This finding suggests that the ATSA was effective in raising fiscal revenues. It indicates that wealth taxes targeting fully measurable assets and relying on third-party reporting may generate fewer behavioural responses, even when the taxable base is relatively narrow and highly liquid - which could offer valuable guidance for policymakers in designing efficient wealth taxes.