Abstract
With the help of a dynamic general equilibrium model calibrated for the Canadian economy, we look at the potential impacts of implementing a wealth tax on the wealthiest Canadians. The emphasis is put on the government’s ability to collect revenues from this form of taxation. We also study whether such a tax would be welfare improving for society as a whole. In an extension to the model, we introduce endogenous wealth tax evasion and analyze how this affects our results. We find that a wealth tax may lead to welfare gains provided that the proportional tax rate is less than 1%. A more aggressive tax would be counterproductive to the economy’s ability to produce goods and would eventually lead to an economy where most agents are worse off. On the other hand, we also find that the potential welfare gains from wealth taxation are nullified when we account for wealth tax evasion.