The Norwegian Bø Municipality Experiment and Swiss Empirical Evidence on Wealth Tax Elasticities
Empirical evidence from subnational tax reforms in Norway and Switzerland reveals extraordinarily high elasticities of taxable wealth with respect to net-of-tax rates, though these responses are almost entirely driven by the short-run mobility of wealthy individuals rather than changes in real savings accumulation or asset appreciation.
The Bø Municipality Experiment (Norway, 2021)
In 2021, the northern Norwegian municipality of Bø unilaterally reduced its municipal wealth tax rate from 0.70% to 0.20%, lowering the overall marginal wealth tax rate (which includes a 0.15% central state surcharge) from 0.85% to 0.35%. This represented the first time since 1892 that a Norwegian municipality unilaterally reduced its wealth tax rate, effectively acting as an onshore tax haven.
A comprehensive empirical analysis of this reform by Roberto Iacono and Bård Smedsvik (2023), using Statistics Norway's administrative registers, documented a massive behavioral response that was heavily concentrated among the ultra-wealthy:
"We document a significant 66.6% increase in average taxable wealth in response to a 1 percentage point drop in the wealth tax rate. The elasticity of taxable wealth increases to 71.6% when focusing exclusively on wealth taxpayers."
However, the authors demonstrated that this response was not driven by real economic growth, savings, or investment, but rather by the physical relocation of a very small number of extremely wealthy individuals:
"Non-real effects of the reform dominate: mobility of wealthy taxpayers appears as the major behavioral response to the change in the net tax rate, accounting for a staggering 79% of the post-treatment total net wealth in the treated municipality (up from 19% in the pre-reform period)."
The actual migration was small in absolute numbers but massive in fiscal impact. The number of wealth taxpayers in Bø rose from 188 in 2020 to 240 in 2021—a net increase of only 52 people. Yet, the average net wealth of these 52 in-movers was an astronomical 93 million NOK (~$10.3 million USD), compared to the average resident wealth taxpayer's net wealth of 8.5 million NOK.
Furthermore, the incentive for Swiss-style tax competition among Norwegian municipalities is heavily blunted by a central government revenue equalization scheme. Under this scheme, municipalities with excess per capita tax revenues are forced to pay back approximately 60% of their excess revenues to the state to be redistributed to municipalities in deficit:
"Due to this revenue equalization scheme imposed by the central government, for each 1 NOK of increased tax revenue in per capita terms, each municipality is forced to pay back 0.6 NOK to the other municipalities experiencing a deficit in tax revenues... effectively neutralizing part of the potential effect of increased revenues on future expenditures."
The Swiss Experience
The Norwegian findings are highly consistent with the Swiss experience, which historically represents the highest revenue-generating wealth tax system in the OECD (raising up to 3.9% of total tax revenues in Switzerland in 2018). In Switzerland, wealth taxes are administered at the cantonal level, resulting in intense subnational tax competition.
A seminal study by Marius Brülhart et al. (2022) exploiting rich intra-national variation across Swiss cantons found that:
"a 1 percentage point drop in the wealth tax rate raises reported wealth by at least 43% [after five years]."
As in Norway, the Swiss response is heavily dominated by tax avoidance and subnational migration rather than real wealth accumulation.