Working Paper: CEPR ID: DP13962
Authors: Florian Scheuer; Joel Slemrod
Abstract: This paper addresses the modern optimal tax progressivity literature, which clarifies the key role of the behavioral response to taxation and accounts for the incomes of the superrich being qualitatively different than others. Some may be “superstars,” for whom small differences in talent are magnified into much larger earnings differences, while others may work in winner-take-all markets, such that their effort to climb the ladder of success reduces the returns to others. We stress that pivotal tax-rate elasticities are not structural parameters, and will be smaller the broader and less plastic is the tax base and the more effective is the enforcement of tax evasion. For this reason, normative analysis of tax rates should be accompanied by attention to the tax base, with special attention to capital gains, which comprise a large fraction of the taxable income of the superrich.
Keywords: superrich; tax systems; superstars; winner-take-all markets; plasticity of taxable income; wealth taxes
JEL Codes: E6; H2; I3; J3; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| elasticity of taxable income (ETI) (H30) | behavioral responses of the superrich (G40) |
| broader and less plastic tax base + effective enforcement against tax evasion (H26) | lower ETI (R49) |
| higher tax rates (H29) | decreased tax revenue (H29) |
| tax burden on the superrich (H22) | understanding of statutory rates (E43) |
| effective tax rates (H29) | incidence of taxes + ability to evade taxes (H26) |
| superrich's ability to evade taxes (H26) | estimation of true tax burden (H22) |