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The Economics of Taxing the Rich

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  • Joel Slemrod

Abstract

How much and how to tax high-income individuals is at the core of many recent proposals for incremental as well as fundamental tax reform. This paper critically reviews the economics literature and concludes that the right answer to these questions depends in part on value judgments about which economics has little to contribute, but also depends on standard economics concerns such as the process generating income and wealth, and whether wealth individuals' economic activities have positive (or negative) externalities. How much and how to tax the rich also depends critically on how they will respond to attempts to tax them because, other things equal, it is wise to limit the extent to which they are induced to pursue less socially productive activities in order to avoid taxes.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6584.

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Date of creation: May 1998
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Publication status: published as Slemrod, J. (ed.) Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Cambridge: Harvard University Press, 2002.
Handle: RePEc:nbr:nberwo:6584

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  1. Daniel Feenberg & James Poterba, 1992. "Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns," NBER Working Papers 4229, National Bureau of Economic Research, Inc.
  2. Slemrod, Joel & Yitzhaki, Shlomo & Mayshar, Joram & Lundholm, Michael, 1994. "The optimal two-bracket linear income tax," Journal of Public Economics, Elsevier, vol. 53(2), pages 269-290, February.
  3. Joel Slemrod & Shlomo Yitzhaki, 1996. "The Costs of Taxation and the Marginal Efficiency Cost of Funds," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 172-198, March.
  4. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  5. Alan S. Blinder & Irving Kristol & Wilbur J. Cohen, 1980. "The Level and Distribution of Economic Well-Being," NBER Chapters, in: The American Economy in Transition, pages 415-500 National Bureau of Economic Research, Inc.
  6. Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
  7. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  8. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 465-90, May.
  9. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  10. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
  11. Musgrave, Philip, 1980. "Income Distribution and the Aggregate Consumption Function," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(3), pages 504-25, June.
  12. Mirrlees, J. A., 1976. "Optimal tax theory : A synthesis," Journal of Public Economics, Elsevier, vol. 6(4), pages 327-358, November.
  13. Allen, Franklin, 1982. "Optimal linear income taxation with general equilibrium effects on wages," Journal of Public Economics, Elsevier, vol. 17(2), pages 135-143, March.
  14. Schmidt-Hebbel, Klaus & Serven, Luis, 1996. "Income inequality and aggregate saving : the cross-country evidence," Policy Research Working Paper Series 1561, The World Bank.
  15. Slemrod, Joel, 1994. "Fixing the leak in Okun's bucket optimal tax progressivity when avoidance can be controlled," Journal of Public Economics, Elsevier, vol. 55(1), pages 41-51, September.
  16. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  17. Joel Slemrod & Jon Bakija, 2004. "Taxing Ourselves, 3rd Edition: A Citizen's Guide to the Debate over Taxes," MIT Press Books, The MIT Press, edition 3, volume 1, number 026269302x, December.
  18. Diamond, P., 1994. "Optimal Income Taxation: An Exemple with a U-Shaped Pattern of Optimal Marginal Tax Rates," Working papers 94-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  19. Magee,Stephen P. & Brock,William A. & Young,Leslie, 1989. "Black Hole Tariffs and Endogenous Policy Theory," Cambridge Books, Cambridge University Press, number 9780521362474, 9.
  20. Sadka, Efraim, 1976. "On Income Distribution, Incentive Effects and Optimal Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 261-67, June.
  21. Joel B. Slemrod, 1992. "Taxation and Inequality: A Time-Exposure Perspective," NBER Chapters, in: Tax Policy and the Economy, Volume 6, pages 105-128 National Bureau of Economic Research, Inc.
  22. Joel Slemrod, 1989. "Optimal Taxation and Optimal Tax Systems," NBER Working Papers 3038, National Bureau of Economic Research, Inc.
  23. Avery, Robert B & Kennickell, Arthur B, 1991. "Household Saving in the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 37(4), pages 409-32, December.
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Cited by:
  1. Mihir A. Desai & Dhammika Dharmapala & Winnie Fung, 2005. "Taxation and the Evolution of Aggregate Corporate Ownership Concentration," NBER Working Papers 11469, National Bureau of Economic Research, Inc.
  2. Carola Frydman & Raven S. Molloy, 2011. "Does Tax Policy Affect Executive Compensation? Evidence from Postwar Tax Reforms," NBER Working Papers 16812, National Bureau of Economic Research, Inc.

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