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Taxation and the Allocation of Talent

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  • Benjamin B. Lockwood
  • Charles G. Nathanson
  • E. Glen Weyl

Abstract

Taxation affects the allocation of talented individuals across professions by blunting material incentives and thus magnifying nonpecuniary incentives of pursuing a "calling." Estimates from the literature suggest that high-paying professions have negative externalities, whereas low-paying professions have positive externalities. A calibrated model therefore prescribes negative marginal tax rates on middle-class incomes and positive rates on the rich. The welfare gains from implementing such a policy are small and are dwarfed by the gains from profession-specific taxes and subsidies. These results depend crucially on externality estimates and labor substitution patterns across professions, both of which are very uncertain given existing empirical evidence.

Suggested Citation

  • Benjamin B. Lockwood & Charles G. Nathanson & E. Glen Weyl, 2017. "Taxation and the Allocation of Talent," Journal of Political Economy, University of Chicago Press, vol. 125(5), pages 1635-1682.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/693393
    DOI: 10.1086/693393
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    References listed on IDEAS

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    Cited by:

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    2. Giovanni Marin & Francesco Vona, 2017. "Finance and the Misallocation of Scientific, Engineering and Mathematical Talent," Documents de Travail de l'OFCE 2017-27, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Arnaud Dupuy & Alfred Galichon & Sonia Jaffe & Scott Duke Kominers, 2020. "Taxation In Matching Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1591-1634, November.
    4. Dur, Robert & van Lent, Max, 2018. "Serving the public interest in several ways: Theory and empirics," Labour Economics, Elsevier, vol. 51(C), pages 13-24.
    5. Alex Bell & Raj Chetty & Xavier Jaravel & Neviana Petkova & John Van Reenen, 2019. "Who Becomes an Inventor in America? The Importance of Exposure to Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 134(2), pages 647-713.
    6. Alexander M. Bell & Raj Chetty & Xavier Jaravel & Neviana Petkova & John Van Reenen, 2019. "Do Tax Cuts Produce More Einsteins? The Impacts of Financial Incentives vs. Exposure to Innovation on the Supply of Inventors," NBER Working Papers 25493, National Bureau of Economic Research, Inc.
    7. Spencer Bastani & Daniel Waldenström, 2020. "The Ability Gradient in Bunching," CESifo Working Paper Series 8233, CESifo.
    8. Robert Dur & Max van Lent, 2019. "Socially Useless Jobs," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 58(1), pages 3-16, January.
    9. Florian Scheuer & Joel Slemrod, 2019. "Taxation and the superrich," ECON - Working Papers 337, Department of Economics - University of Zurich.
    10. Louis Kaplow, 2019. "Market Power and Income Taxation," NBER Working Papers 25578, National Bureau of Economic Research, Inc.
    11. Klaus Prettner & Davud Rostam‐Afschar, 2020. "Can taxes raise output and reduce inequality? The case of lobbying," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(5), pages 455-461, November.
    12. Lawson, Nicholas, 2019. "Taxing the job creators: Efficient taxation with bargaining in hierarchical firms," Labour Economics, Elsevier, vol. 56(C), pages 1-25.
    13. Nicola Bianchi & Michela Giorcelli, 2019. "Scientific Education and Innovation: From Technical Diplomas to University STEM Degrees," NBER Working Papers 25928, National Bureau of Economic Research, Inc.

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