High marginal tax rates on the top 1%?

  • In this paper we argue that very high marginal labor income tax rates are an effective tool for social insurance even when households have preferences with high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. To make this point we construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a wealth distribution that matches the data well, and then use it to characterize fiscal policies that achieve a desired degree of redistribution in society. We find that marginal tax rates on the top 1% of the earnings distribution of close to 90% are optimal. We document that this result is robust to plausible variation in the labor supply elasticity and holds regardless of whether social welfare is measured at the steady state only or includes transitional generations.

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Metadaten
Author:Fabian Kindermann, Dirk KruegerORCiDGND
URN:urn:nbn:de:hebis:30:3-351054
URL:http://ssrn.com/abstract=2507167
DOI:https://doi.org/10.2139/ssrn.2507167
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 473
Series (Serial Number):CFS working paper series (473)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2014
Year of first Publication:2014
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2014/10/20
Tag:Income Inequality; Progressive Taxation; Social Insurance; Top 1%
Issue:October 5, 2014
Page Number:54
HeBIS-PPN:351156356
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht