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Taxation and the superrich


Scheuer, Florian; Slemrod, Joel (2019). Taxation and the superrich. Working paper series / Department of Economics 337, University of Zurich.

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 a special focus on capital gains, which comprise a large fraction of the taxable income of the superrich.

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 a special focus on capital gains, which comprise a large fraction of the taxable income of the superrich.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:H2, H21, H26
Uncontrolled Keywords:Superrich, tax systems, superstars, winner-take-all markets, plasticity of taxable income, wealth taxes
Language:English
Date:November 2019
Deposited On:24 Sep 2019 14:19
Last Modified:26 Nov 2019 10:25
Series Name:Working paper series / Department of Economics
Number of Pages:33
ISSN:1664-705X
Additional Information:Also published as NBER Working Paper No. 26207 (see related URLs).
OA Status:Green
Official URL:https://www.econ.uzh.ch/static/release/workingpapers.php?id=1016
Related URLs:https://www.nber.org/papers/w26207

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