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Higher Taxes at the Top: The Role of Entrepreneurs

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  • Bettina Brüggemann

Abstract

This paper computes optimal top marginal tax rates in Bewley-Huggett-Aiyagari–type economies that include entrepreneurs. Consistent with the data, entrepreneurs are overrepresented at the top of the income distribution and are thus disproportionately affected by an increase in the top marginal income tax rate. The top marginal tax rate that maximizes welfare is 60 percent. While average welfare gains are positive and similar across occupations along the transition, they are larger for entrepreneurs than for workers in the long run, and this occupational gap in welfare gains after the tax increase widens with increasing income.

Suggested Citation

  • Bettina Brüggemann, 2021. "Higher Taxes at the Top: The Role of Entrepreneurs," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 1-36, July.
    • Handle: RePEc:aea:aejmac:v:13:y:2021:i:3:p:1-36
    DOI: 10.1257/mac.20170441
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    Citations

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    Cited by:

    1. Ayse Imrohoroglu & Cagri Kumru & Jiu Lian & Arm Nakornthab, 2023. "Revisiting Taxes on High Incomes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 1159-1184, December.
    2. Luisa Fuster, 2022. "Macroeconomic and distributive effects of increasing taxes in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(4), pages 613-648, December.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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