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Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities

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  • Stefanie Stantcheva

    (MIT)

  • Emmanuel Saez

    (University of California Berkeley)

  • Thomas Piketty

    (Paris School of Economics)

Abstract

We then analyze top income and top tax rate data in 18 OECD countries. There is a strong correlation between cuts in top tax rates and increases in top 1% income shares since 1975, implyingthat the overall elasticity is large. But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model. This suggests that the first elasticity is modest in size and that the overall effect comes mostly from the third elasticity. Consequently, socially optimal top tax rates might possibly be much higher than what is commonly assumed.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 78.

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Date of creation: 2012
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Handle: RePEc:red:sed012:78

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  1. Joseph E. Stiglitz, 1981. "Self-Selection and Pareto Efficient Taxation," NBER Working Papers 0632, National Bureau of Economic Research, Inc.
  2. Kleven, Henrik & Landais, Camille & Saez, Emmanuel, 2010. "Taxation and International Migration of Superstars: Evidence from the European Football Market," CEPR Discussion Papers 8134, C.E.P.R. Discussion Papers.
  3. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1039-1073, August.
  4. Atkinson, Anthony B. & Leigh, Andrew, 2010. "The Distribution of Top Incomes in Five Anglo-Saxon Countries over the Twentieth Century," IZA Discussion Papers 4937, Institute for the Study of Labor (IZA).
  5. Saez, Emmanuel, 2004. "Direct or indirect tax instruments for redistribution: short-run versus long-run," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 503-518, March.
  6. Casey Rothschild, 2013. "Redistributive Taxation in the Roy Model," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 623-668.
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  1. Taxes & growth
    by chris dillow in Stumbling and Mumbling on 2014-01-27 14:49:16
  2. Inequality: a missing perspective
    by chris dillow in Stumbling and Mumbling on 2014-04-24 13:28:09
  3. Given the enormity of the short- and long-run fiscal challenges facing the US, the lack of policy detail from both presidential candidates is disappointing
    by Blog Admin in British Politics and Policy at LSE on 2012-10-25 13:00:36
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