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The Taxation of Superstars

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  • Florian Scheuer
  • Iván Werning

Abstract

How are optimal taxes affected by superstar phenomena? To answer this question, we extend the Mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects. Perhaps surprisingly, rather than providing a rationale for higher taxes, we show that superstar effects provide a force for lower marginal taxes conditional on the observed distribution of earnings. Superstar effects make the earnings schedule convex, which increases the responsiveness of individual earnings to tax changes. We show that various common elasticity measures must be adjusted upward in optimal tax formulas. Finally, we study a comparative static that does not keep the observed earnings distribution fixed: when superstar technologies are introduced, inequality increases but we obtain a neutrality result, finding optimal taxes unaltered.

Suggested Citation

  • Florian Scheuer & Iván Werning, 2017. "The Taxation of Superstars," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 211-270.
  • Handle: RePEc:oup:qjecon:v:132:y:2017:i:1:p:211-270.
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    File URL: http://hdl.handle.net/10.1093/qje/qjw036
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    Citations

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    Cited by:

    1. Laurence Ales & Christopher Sleet, 2016. "Taxing Top CEO Incomes," American Economic Review, American Economic Association, vol. 106(11), pages 3331-3366, November.
    2. Morten Olsen & Joshua Gottlieb & David Hemous & Jeffrey Clemens, 2017. "The Spill-over Effects of Top Income Inequality," 2017 Meeting Papers 332, Society for Economic Dynamics.
    3. Florian Scheuer & Joel Slemrod, 2019. "Taxation and the superrich," ECON - Working Papers 337, Department of Economics - University of Zurich.
    4. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2016. "Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium," NBER Working Papers 22646, National Bureau of Economic Research, Inc.
    5. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2016. "A Theory of Asset Prices Based on Heterogeneous Information," Cowles Foundation Discussion Papers 2051, Cowles Foundation for Research in Economics, Yale University.
    6. Alexander Ludwig & Alexander Monge-Naranjo & Ctirad Slavik & Faisal Sohail, 2019. "Financial Liberalization and Income Inequality: On the Heterogenous Effects of Different Reforms," 2019 Meeting Papers 895, Society for Economic Dynamics.
    7. Felix Bierbrauer, 2016. "Effizienz oder Gerechtigkeit? Ungleiche Einkommen, ungleiche Vermögen und die Theorie der optimalen Besteuerung," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_03, Max Planck Institute for Research on Collective Goods.
    8. Bettina Brueggemann, 2016. "Higher Taxes at the Top: The Role of Entrepreneurs," 2016 Meeting Papers 332, Society for Economic Dynamics.
    9. repec:eee:eecrev:v:101:y:2018:i:c:p:1-19 is not listed on IDEAS
    10. repec:eee:labeco:v:56:y:2019:i:c:p:1-25 is not listed on IDEAS
    11. Corneo, Giacomo, 2018. "Time-poor, working, super-rich," European Economic Review, Elsevier, vol. 101(C), pages 1-19.

    More about this item

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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