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Revisiting Tax on Top Income

Author

Listed:
  • Ayse Imrohoroglu
  • Cagri S. Kumru
  • Arm Nakornthab

Abstract

In this paper, we study optimal income taxation in a model with entrepreneurial activity. We conduct two types of changes in tax policy: changing the overall progressivity of taxes versus changing the tax rate of the richest 1% of the population. We study the implications of these tax policies on welfare, inequality, and government revenues. Our results indicate that increasing the overall progressivity of taxes results in lower wealth inequality and higher welfare relative to increasing the tax rate on the richest 1% of the population.

Suggested Citation

  • Ayse Imrohoroglu & Cagri S. Kumru & Arm Nakornthab, 2018. "Revisiting Tax on Top Income," ANU Working Papers in Economics and Econometrics 2018-660, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2018-660
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp660.pdf
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    References listed on IDEAS

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    12. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
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    Cited by:

    1. Anmol Bhandari & Serdar Birinci & Ellen R. McGrattan & Kurt See, 2020. "What Do Survey Data Tell Us about US Businesses?," American Economic Review: Insights, American Economic Association, vol. 2(4), pages 443-458, December.
    2. Alessandro Di Nola & Georgi Kocharkov & Almuth Scholl & Anna-Mariia Tkhir, 2021. "The Aggregate Consequences of Tax Evasion," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 198-227, April.
    3. Corina Boar & Virgiliu Midrigan, 2020. "Efficient Redistribution," NBER Working Papers 27622, National Bureau of Economic Research, Inc.
    4. Boar, Corina & Midrigan, Virgiliu, 2022. "Efficient redistribution," Journal of Monetary Economics, Elsevier, vol. 131(C), pages 78-91.
    5. Heer, Burkhard & Trede, Mark, 2023. "Age-specific entrepreneurship and PAYG: Public pensions in Germany," Journal of Macroeconomics, Elsevier, vol. 75(C).
    6. Daniel Carroll & Sewon Hur, 2023. "On The Distributional Effects Of International Tariffs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1311-1346, November.

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    More about this item

    Keywords

    Entrepreneurship; taxation; progressivity; labor supply;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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