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Taxing Top Earners: a Human Capital Perspective

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  • Alejandro Badel
  • Mark Huggett
  • Wenlan Luo

Abstract

An established view is that the revenue maximising top tax rate for the US is approximately 73%. In contrast, the revenue maximising top tax rate is approximately 49% in our quantitative human capital model. The key reason for the lower top tax rate is the presence of two new forces not captured by the model underlying the established view. These new forces are strengthened by the endogenous response of top earners’ human capital to a change in the top tax rate.

Suggested Citation

  • Alejandro Badel & Mark Huggett & Wenlan Luo, 2020. "Taxing Top Earners: a Human Capital Perspective," Economic Journal, Royal Economic Society, vol. 130(629), pages 1200-1225.
  • Handle: RePEc:oup:econjl:v:130:y:2020:i:629:p:1200-1225.
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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