For some assets, however, market values are hard to assess. One example is housing, where value is established based on simple hedonistic pricing models in addition to a sizable rebate for primary residential housing.
Another asset that is hard to price is unlisted equity, which are rarely traded between unrelated parties and market values are thus hard to establish. These assets are therefore valued at book value, with special rules for some assets held by the firm. A sizable literature suggest that book values underestimate market values. If this is the case, it has important implications for officla statistics, research, tax revenue and economic efficiency. As an example, wealth inequality might be considerably higher than in official statistics because unlisted equity is unevenly distributed across the wealth distribution, tax revenue might decrease compared to the correct valuation and the wealth tax may introduce incentives to overinvest in unlisted equity relative to other assets. The introduction of valuation
rebates for unlisted equity in 2017 may increase these concerns.
This reports estimates price-to-book ratios for Norwegian firms listed firms in the years 2004-2019. Under a strong assumption of comparability of price-to-book ratios from listed to unlisted firms, we extrapolate from these relationships to arrive at estimates of the market value of all unlisted equity. Results suggest that the market value of all Norwegian unlisted firms owned by Norwegians is approximately 1.9 times the tax value of these firms, with increasing degree of undervaluation later in the period. In the last year of our sample, accounting for the valuation rebate from 2022 (25%), results indicate that owners are taxed at about 35% of true value. This has implications for wealth inequality, which increases from 68 to 75 points when unlisted equity is measured at market value rather than tax value.