Paper: arXiv 2603.05277

Authors: Anders G Frøseth

Abstract

Frøseth (2026; arXiv:2603.05264) shows that a proportional wealth tax on market values is neutral with respect to portfolio choice, Sharpe ratios, and equilibrium prices under CRRA preferences and geometric Brownian motion. This paper investigates the robustness of that result along two dimensions. First, we extend the neutrality frontier: portfolio neutrality – including all intertemporal hedging demands – is preserved under stochastic volatility (Heston and general Markov diffusions) and Epstein-Zin recursive utility, but breaks under non-homothetic preferences such as HARA. Second, we identify four channels through which implemented wealth taxes depart from neutrality even under CRRA: non-uniform assessment across asset classes, general equilibrium price effects in inelastic markets, progressive threshold structures, and endogenous labour supply. Each channel is formalised and, where possible, calibrated to the Norwegian wealth tax system. The progressive threshold introduces a tax shield that increases risk-taking near the exemption boundary – an effect opposite in sign to the HARA distortion – and, at the extreme, generates a participation margin at which investors exit the tax jurisdiction entirely. We formalise this tax-induced migration as the extreme response at the progressive threshold and examine the Norwegian post-2022 experience as a case study. The full framework is applied to evaluate the Saez-Zucman proposal for a global minimum wealth tax on billionaires and the related French proposal for a national minimum tax above EUR 100 million.

Complexity vs Empirical Score

  • Math Complexity: 8.0/10
  • Empirical Rigor: 3.0/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: The paper presents a rigorous theoretical expansion of the wealth tax neutrality framework using stochastic volatility, HARA, and Markov diffusion models with clear formal proofs. However, as a purely analytical continuous-time finance paper, it lacks empirical backtesting, relying instead on structural calibrations and qualitative policy case studies.

Research Flowchart

  flowchart TD
    A["Research Question: Robustness & Extensions of Wealth Tax Neutrality"] --> B["Theoretical Extension: Stochastic Volatility, Epstein-Zin, HARA Preferences"]
    A --> C["Policy Distortion Analysis: Norwegian Tax System & Saez-Zucman Proposal"]
    
    B --> D["Analytical Modeling: Continuous-time Asset Pricing & Portfolio Choice"]
    C --> D
    
    D --> E["Findings: Neutrality holds for EZ/Stochastic Volatility; breaks under HARA"]
    D --> F["Findings: Progressivity & Non-uniformity distort risk-taking and induce migration"]