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Tax Progressivity and Top Incomes: Evidence from Tax Reforms

Listed author(s):
  • Rubolino, Enrico

    (Uppsala University)

  • Waldenström, Daniel

    ()

    (Paris School of Economics)

Registered author(s):

    We study the link between tax progressivity and top income shares. Using variation from large-scale Western tax reforms in the 1980s and 1990s and the novel synthetic control method, we find large and lasting boosting impacts on top income shares from the progressivity reductions. Effects are largest in the very top groups while earners in the bottom half of the top decile were almost unaffected by the reforms. Cuts in top marginal tax rates account for most of this outcome whereas reduced overall progressivity contributed less. Searching for mechanisms, real income responses as measured by growth in aggregate GDP per capita, registered patents and tax revenues were unaffected by the reforms. By contrast, tax avoidance behavior related to the management of capital incomes in the very income top appears to lie behind the observed effects.

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    File URL: http://ftp.iza.org/dp10666.pdf
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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 10666.

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    Length: 61 pages
    Date of creation: Mar 2017
    Handle: RePEc:iza:izadps:dp10666
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    1. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    2. World Bank, 2012. "World Development Indicators 2012," World Bank Publications, The World Bank, number 6014, October.
    3. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
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