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What Determines Top Income Shares? The Role of the Interactions between Financial Integration and Tax Policy
[Le rôle des interactions entre l'intégration financière et la politique fiscale dans la montée des hauts revenus]

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  • Thibault Darcillon

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article aims at analyzing the role of the interactions between financial deregulation policies and changes in top tax marginal rates to explain the evolution in top income shares since the 1980s in most OECD countries. I argue that higher financial integration should have an increasing-effect on top income shares by resulting in lower marginal top tax rates. First, international financial integration has gradually contributed to increased tax competition by raising capital mobility. Second, financial integration also reflects higher bargaining power for top earners, pushing for a reduction in marginal top tax rates. Based on instrumental variables and simultaneous equations system regressions, I find strong evidence of my hypothesis: first, financial integration is negatively correlated with higher top marginal tax rates; second, this result seems to explain the negative relationship between marginal top tax rates and top income shares.

Suggested Citation

  • Thibault Darcillon, 2016. "What Determines Top Income Shares? The Role of the Interactions between Financial Integration and Tax Policy [Le rôle des interactions entre l'intégration financière et la politique fiscale dans la," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01316927, HAL.
    • Handle: RePEc:hal:cesptp:halshs-01316927
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01316927
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    More about this item

    Keywords

    Financial integration; top income shares; tax policy; Intégration financière; part des hauts revenus; politique fiscale;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • I39 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Other
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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