By Francesco Canepa

FRANKFURT (Reuters) – Cash-strapped European governments looking to tax the rich harder to plug holes in public finances and redress rising inequality may find that direct wealth levies are not the most effective solution.

History shows outright wealth taxes rarely generate much revenue and often miss their main targets, tax experts and economists say. They point to a menu of options that work better, including greater scrutiny of capital gains, inheritance taxes and exit fees for those trying to switch to a tax haven.

“Concerns about wealth inequality do not imply that governments should use net wealth taxes,” the IMF said in a recent guide to governments. “Improving capital income taxes tends to be both more equitable and more efficient.”

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