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Taxing the Rich

Author

Listed:
  • Augustin Landier
  • Guillaume Plantin

Abstract

Affluent households can respond to taxation with means that are not economically viable for the rest of the population, such as sophisticated tax plans and international tax arbitrage. This article studies an economy in which an inequality-averse social planner faces agents who have access to a tax-avoidance technology with subadditive costs, and who can shape the risk profile of their income as they see fit. Subadditive avoidance costs imply that optimal taxation cannot be progressive at the top. This in turn may trigger excessive risk-taking. When the avoidance technology consists in costly migration between two countries that compete fiscally, we show that an endogenous increase in inequality due to risk-taking makes progressive taxation more fragile, which vindicates in turn risk-taking and can lead to equilibria with regressive tax rates at the top, and high migrations of wealth towards the smaller country.

Suggested Citation

  • Augustin Landier & Guillaume Plantin, 2017. "Taxing the Rich," Review of Economic Studies, Oxford University Press, vol. 84(3), pages 1186-1209.
  • Handle: RePEc:oup:restud:v:84:y:2017:i:3:p:1186-1209.
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    File URL: http://hdl.handle.net/10.1093/restud/rdw033
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    Cited by:

    1. repec:eee:soceco:v:81:y:2019:i:c:p:195-206 is not listed on IDEAS
    2. Viral Acharya & Guillaume Plantin, 2018. "Monetary Easing, Investment and Financial Instability," Sciences Po publications DP 13072, Sciences Po.
    3. Sala, Hector, 2019. "A fresh look at fiscal redistribution and inequality in the US across electoral cycles," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 81(C), pages 195-206.

    More about this item

    Keywords

    Optimal taxation; Tax avoidance;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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