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Taxation Of Top Incomes And Tax Avoidance

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  • Alessandro Di Nola
  • Georgi Kocharkov
  • Almuth Scholl
  • Anna‐Mariia Tkhir
  • Haomin Wang

Abstract

We examine the aggregate and distributional effects of raising the top marginal income tax rate in the presence of entrepreneurial tax avoidance. In a model with heterogeneous agents and occupational choice, entrepreneurs can avoid taxes by choosing the legal form of business organization and shifting income across tax bases. Applied to the U.S. economy, we find that tax avoidance weakens the distortionary effects of higher income taxes at the top but makes them ineffective at lowering inequality. Eliminating tax avoidance by an equal tax treatment of entrepreneurs across all legal forms substantially increases tax revenue, aggregate output, and welfare.

Suggested Citation

  • Alessandro Di Nola & Georgi Kocharkov & Almuth Scholl & Anna‐Mariia Tkhir & Haomin Wang, 2025. "Taxation Of Top Incomes And Tax Avoidance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(3), pages 983-1018, August.
    • Handle: RePEc:wly:iecrev:v:66:y:2025:i:3:p:983-1018
    DOI: 10.1111/iere.12758
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