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The rich demystified: A reply to Bach, Corneo, and Steiner (2008)

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  • Jacob, Martin
  • Niemann, Rainer
  • Weiss, Martin

Abstract

The contribution Bach, Corneo and Steiner (2008) has argued that "the rich" do not pay taxes adequately in relation to their income, finding, for instance, an effective tax rate of only 38.1% for the 0.001% fractile of German income taxpayers in 2001. This result contrasts sharply with the legislated top marginal income tax rate of 48.5%. We subject the results contained in Bach, Corneo and Steiner (2008) to a rigorous analysis: We find major flaws and inconsistencies with regard to methodology, i.e. the omission of corporate taxes and inter-temporal aspects of taxation. Restating basic rules for the measurement of effective tax rates, we provide values for what we term the "comprehensive nominal tax rate" (CNTR) and show that the headline result in Bach, Corneo and Steiner (2008) of 38.1% is underestimated by over 12 percentage points. As an important distributional result, the CNTR increases with increasing taxable income.

Suggested Citation

  • Jacob, Martin & Niemann, Rainer & Weiss, Martin, 2008. "The rich demystified: A reply to Bach, Corneo, and Steiner (2008)," arqus Discussion Papers in Quantitative Tax Research 58, arqus - Arbeitskreis Quantitative Steuerlehre.
  • Handle: RePEc:zbw:arqudp:58
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    References listed on IDEAS

    as
    1. Joachim Merz & Daniel Vorgrimler & Markus Zwick, 2006. "De facto anonymised microdata file on income tax statistics 1998," FFB-Discussionpaper 58, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
    2. Mervyn A. King & Don Fullerton, 1984. "Introduction to "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany"," NBER Chapters,in: The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany, pages 1-6 National Bureau of Economic Research, Inc.
    3. Deborah Knirsch, 2007. "Measuring tax distortions with neutrality-based effective tax rates," Review of Managerial Science, Springer, vol. 1(2), pages 151-165, August.
    4. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2008. "Effective Taxation of Top Incomes in Germany, 1992 - 2002," Discussion Papers of DIW Berlin 767, DIW Berlin, German Institute for Economic Research.
    5. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2005. "Top Incomes and Top Taxes in Germany," CESifo Working Paper Series 1641, CESifo Group Munich.
    6. Mervyn A. King & Don Fullerton, 1984. "The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany," NBER Books, National Bureau of Economic Research, Inc, number king84-1.
    7. Joachim Merz & Daniel Vorgrimler & Markus Zwick, 2006. "EUROPEAN DATA WATCH: De facto Anonymised Microdata File on Income Tax Statistics 1998," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 126(2), pages 313-327.
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    More about this item

    Keywords

    Top Incomes; Income Taxation; Taxing the Rich; Comprehensive Tax Burden;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H00 - Public Economics - - General - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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