Higher Tax for Top Earners
In: Journal of economics, Band 122, Heft 2, S. 121-136
ISSN: 1617-7134
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In: Journal of economics, Band 122, Heft 2, S. 121-136
ISSN: 1617-7134
SSRN
We set up a simple model of tax competition for mobile, highly-skilled and overconfident managers. Firms endogenously choose the compensation scheme for managers, which consists of a fixed wage and a bonus payment in the high state. Managers are overconfident about the probability of the high state and hence of receiving the bonus, whereas firms and governments are not. In this setting we show that overconfidence (i) unambiguously increases the bonus component in the managers' compensation package and (ii) it reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium. Hence overconfidence can contribute to explaining both the increasing role of bonus contracts and the fall in marginal tax rates for high-income earners.
BASE
We set up a simple model of tax competition for mobile, highly-skilled and overconfident managers. Firms endogenously choose the compensation scheme for managers, which consists of a fixed wage and a bonus payment in the high state. Managers are overconfident about the probability of the high state and hence of receiving the bonus, whereas firms and governments are not. When governments maximize tax revenues, we show that overconfidence unambiguously reduces the bonus tax rate that governments set in the non-cooperative tax equilibrium, while increasing tax revenues. When the government objective incorporates the welfare of resident managers, however, bonus taxes also serve a corrective role and may rise in equilibrium when overconfidence is increased.
BASE
In: CESifo Working Paper No. 8550
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Working paper
In: American economic review, Band 104, Heft 5, S. 148-153
ISSN: 1944-7981
How sensitive to business cycles are the earnings of top earners? And, how does the business cycle sensitivity of top earners vary by industry? We use a confidential dataset on earnings histories of US males from the Social Security Administration. On average, individuals in the top 1 percent of the earnings distribution are slightly more cyclical than the population average. But there are large differences across sectors; top earners in Finance, Insurance, and Real Estate (FIRE) and Construction face substantial business cycle volatility, whereas those in Services (who make up 40 percent of individuals in the top 1 percent) have earnings that are less cyclical than the average worker.
In: The economic journal: the journal of the Royal Economic Society, Band 130, Heft 629, S. 1200-1225
ISSN: 1468-0297
AbstractAn established view is that the revenue maximising top tax rate for the US is approximately 73%. In contrast, the revenue maximising top tax rate is approximately 49% in our quantitative human capital model. The key reason for the lower top tax rate is the presence of two new forces not captured by the model underlying the established view. These new forces are strengthened by the endogenous response of top earners' human capital to a change in the top tax rate.
In: NBER Working Paper No. w19864
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In: OECD observer
ISSN: 1561-5529
In: Journal of European public policy, S. 1-28
ISSN: 1466-4429
In: CEPR Discussion Paper No. DP13044
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Working paper
In: Socio-economic review, Band 20, Heft 2, S. 515-538
ISSN: 1475-147X
Abstract
The article explores the attitudes and perceptions of those at the top of the income scale toward economic inequalities. Through a qualitative case study, it presents how a group of top 0.1% of earners in Finland—one of the most equal countries in the world—perceive and legitimize economic disparities in an era of rising inequalities. By drawing together studies of economic inequality with the sociology of elites, the article analyzes the cultural repertoires through which the top earners make sense of inequality. As its key finding, it introduces the concept of hyperopia of wealth to describe the discursive blindness that the wealthy respondents have toward the structural conditions of economic disparities. The results indicate that top earners have a tendency to either ignore or approve the existing inequalities while disregarding the role of the wealthy and wealth in the dynamics. This blindness is named as hyperopia of wealth, analogous to a condition in which one cannot see things that are close clearly.
In: Science and public policy: journal of the Science Policy Foundation, Band 45, Heft 1, S. 1-13
ISSN: 1471-5430
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In: JPUBE-D-22-00157
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