A European wealth tax for a fair and green recovery

Policy Study

The European Union faces the twin crises of Covid-19 and climate change. Confronting both crises requires an unprecedented volume of public resources. The question of how to raise these funds without jeopardising an already weak COVID recovery while doing so in a fair way without undermining broad political support for climate action, poses a major political and economic challenge.

Jakob Kapeller, Stuart Leitch and Rafael Wildauer investigate the potential of a European net wealth tax to raise substantial revenues while supporting the economy and the consensus on climate action. To achieve this, household survey data from the European Central Bank (covering 22 EU countries) are analysed.

A combination of clever design choices, more resources and better infrastructure for the EU’s tax authorities would make a European net wealth tax feasible. With respect to the tax design, high exemption thresholds between €1 million and €2 million, paired with progressive tax rates and a broad tax base, imply that only the richest 1% to 3% of all households are taxed and thus the problem of illiquid tax subjects is avoided, while keeping the revenue potential high.

This policy study shows that overall, a European net wealth tax has the potential to make a substantial contribution to the EU’s efforts to organise a decisive response to the twin crises of Covid-19 and climate change.

This study is part of the research project, developed in partnership with the Karl-Renner-Institut and the Austrian Federal chamber of Labour, Vienna (AK), entitled “A fiscally sustainable public investment initiative in Europe to prevent climate collapse”. The research aims to pursue three objectives:

1. Are the planned measures laid out in the European Commission’s Green Deal roadmap enough to meet the Paris targets?
2. Are publicly-funded climate infrastructure investment initiatives fiscally sustainable?
3. What is the revenue potential of a European wealth tax to fund climate action