Taxing the rich to finance redistribution – evidence from a permanent tax increase in Singapore

Based on a representative sample of consumer financial transaction data, this paper studies the consumption and savings response to a 2015 permanent increase in the marginal income tax of the high-income taxpayers. Using difference-in-differences regressions, controlling for individual and time fixed effects, we show robust results that the affected consumers experienced little change in their spending. The pattern is prevalent across consumer demographics and is found even among consumers who are sophisticated, have high levels of debt, or register little income changes. Furthermore, the tax increase financed fiscal redistribution leads to a long-lasting increase in the consumption of the lower-income population.

Agarwal, Sumit and Qian, Wenlan and Yeung, Bernard Yin and Zheng, Huanhuan, Taxing the Rich to Finance Redistribution – Evidence from a Permanent Tax Increase in Singapore (March 31, 2020). Forthcoming in Management Science, Available at SSRN: https://ssrn.com/abstract=3564834 or http://dx.doi.org/10.2139/ssrn.3564834