The debate surrounding wealth taxation has gained traction, with proposals ranging from regular wealth taxes to one-off capital levies. However, clarity is often lacking, as different tax types are conflated, leading to confusion in public discourse. In the meanwhile, the spotlight on tax avoidance and evasion, particularly among the wealthiest echelons, has intensified in recent years, fueled by high-profile leaks such as the Swiss Leaks and the Panama Papers. Over recent decades, tax rates on wealth have declined globally, including corporate income taxes and capital income taxes. Despite this, wealth taxes have fallen out of favor as the public discourse around them is still very controversial, with only a handful of OECD countries still levying them explicitly.

Addressing inequality requires a nuanced approach. While targeted responses like labor market reforms and anti-trust measures can tackle specific sources of inequality, tax policy offers a broad-reaching solution. International organizations like the IMF have increasingly emphasized the role of tax policy in mitigating inequality insofar as it allows for the mitigation of inequality arising from developments such as international trade and technological progress, without impeding growth.

Determining the extent of wealth taxation is a complex issue – which we have tried to simplify through the interactive tool on our homepage. While there's a growing case for higher effective taxation due to increasing wealth inequality, specific levels of taxation remain contingent on country-specific factors.

A recent study by the IMF suggests that improved capital income taxation tends to be both more efficient and equitable compared to a net wealth tax. Improving capital income taxation means closing loopholes and addressing undertaxation of capital gains. This could involve removing reduced tax rates, exemptions, and adjusting wealth transfers to be treated as capital gain realizations. Generally, moving towards taxation on accrual and strengthening capital transfer taxes are suggested as ways to complement existing tax structures and further address wealth inequality. Finally, taxing capital transfers through gifts or inheritance presents a good alternative for addressing wealth inequality, albeit with challenges related to avoidance and evasion. Enhanced information sharing and efforts to combat international tax avoidance are also crucial steps in ensuring a fair and effective tax system.

Read the full study here.