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Taxing the Rich

Author

Listed:
  • Augustin Landier

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Guillaume Plantin

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, Tepper School of Business - CMU - Carnegie Mellon University [Pittsburgh])

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," Post-Print hal-03391964, HAL.
    • Handle: RePEc:hal:journl:hal-03391964
    DOI: 10.1093/restud/rdw033
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03391964
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    Cited by:

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    2. Georges Casamatta, 2021. "Optimal income taxation with tax avoidance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(3), pages 534-550, June.
    3. Guillaume Plantin & Viral Acharya, 2018. "Monetary Easing, Investment and Financial Instability," Working Papers hal-03393126, HAL.
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    5. Alstadsæter, Annette & Johannesen, Niels & Le Guern Herry, Ségal & Zucman, Gabriel, 2022. "Tax evasion and tax avoidance," Journal of Public Economics, Elsevier, vol. 206(C).
    6. repec:hal:spmain:info:hdl:2441/2oaa6391f290lqkugdaeab6cq4 is not listed on IDEAS
    7. Bag, Parimal K. & Wang, Peng, 2021. "Income tax evasion and audits under common and idiosyncratic shocks," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 99-116.
    8. Georges Casamatta, 2023. "Optimal income taxation with tax avoidance and endogenous labor supply," Post-Print hal-04015963, HAL.

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    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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