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Taxing Top Earners: A Human Capital Perspective

Author

Listed:
  • Alejandro Badel

    () (Federal Reserve Bank of St. Louis)

  • Mark Huggett

    () (Georgetown University)

Abstract

We assess the consequences of substantially increasing the marginal tax rate on U.S. top earners using a human capital model. We nd that (1) the peak of the model La er curve occurs at a 52 percent top tax rate, (2) if human capital were exogenous, then the top of the La er curve would occur at a 66 percent top tax rate and (3) applying the theory and methods that Diamond and Saez (2011) use to provide quantitative guidance for setting the top tax rate to model data produces a tax rate that substantially exceeds 52 percent.

Suggested Citation

  • Alejandro Badel & Mark Huggett, 2014. "Taxing Top Earners: A Human Capital Perspective," Working Papers 2014-021, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2014-021
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    human capital; marginal tax rate; Inequality; Laffer curve;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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