Reducing Problematizing Public Debt: Proposal of a Voluntary One-Time Wealth Tax for the Wealthy

Abstract

This paper brings forth a proposal for voluntary one-time wealth tax to reduce the problematizing public debt. In the light of many countries’ failed attempts to normalize their problematizing debt using a one-time wealth tax, this paper proposes a modification to this tax. The proposal comes with the aim of creating a win-win situation and voluntary application of the wealth tax. The win-win situation is proposed as a tradeoff opportunity for government and taxpayers. The proposal allows government to tradeoff its future tax revenues for one-time wealth tax revenue in order to reduce problematizing public debt; and a tradeoff opportunity is provided for the taxpayer to pay a lump sum one-time wealth tax in return for exemption of any future taxes for a long period of time. The paper develops a simulation of real world taxpayer-government relationship in an overlapping generations model of closed economy. The model is used to construct payoffs for taxpayers and government in normal and high debt scenarios, under one-time wealth tax and ordinary tax regimes. Using a game theory setting, the decision and payoffs are presented in game form. The model allows calculating the payoffs under different scenarios. Based on the result of payoffs, the paper concludes that under high debt levels, a voluntary one-time wealth tax present a win-win situation for both government and taxpayers.