Globalization and the societal consensus of wealth tax cuts

Abstract

Wealth taxes are redistributive policies, which tap into the accumulation of wealth at the top. As the financial burden of these taxes affect a small elite, standard political science arguments suggest that they are popular instruments. Yet, democratic governments have increasingly cut wealth taxes. This paper sheds light on the reasons for their decline. It is the main argument that in the context of financial globalization not only right-wing but also left-wing governments cut wealth taxes as they undermine economic competitiveness, which is in the interest of the whole society. The societal consensus is particularly pronounced under corporatism, where capital and labour establish a reliable agreement not to tax wealth in return for long-term growth and employment. Based on a database for inheritance and net wealth taxes in up to 18 countries since 1970, the findings illustrate the emergence of a societal consensus of wealth tax cuts.