Heterogeneity and Government Revenues: Higher Taxes at the Top?
By Nezih Guner, Martin Lopez-Daneri, Gustavo Ventura. Social Science Research Network, 2014
115 citations recorded by the source corpus.
We evaluate the effectiveness of a more progressive tax scheme in raising government revenues. We develop a life-cycle economy with heterogeneity and endogenous labor supply. Households face a progressive income tax schedule, mimicking the Federal Income tax, and flat-rate taxes that capture payroll, state and local taxes and the corporate income tax. We parameterize this model to reproduce aggregate and cross-sectional observations for the U.S. economy, including the shares of labor income for top earners. We find that a tilt of the Federal income tax schedule towards high earners leads to small increases in revenues which are maximized at an effective marginal tax rate of about 36.9% for the richest 5% of households -- in contrast to a 21.7% marginal rate in the benchmark economy. Maximized revenue from Federal income taxes is only 8.4% higher than it is in the benchmark economy, while revenues from all sources increase only by about 1.6%. The room for higher revenues from more progressive taxes is even lower when average taxes are higher to start with. We conclude that these policy recommendations are misguided if the aim is to exclusively raise government revenue.
Subfields: Economics and Econometrics, Gender Studies
View Paper: https://www.semanticscholar.org/paper/92b7609a3df71af084d7366f66d3f5a9689ab154
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Citations in the corpus
- The evolution of wealth inequality over half a century: The role of taxes, transfers and technology (2016, methodology): “We set ζt to match the growth in the variance of log-equivalized household earnings in the PSID as reported by Heathcote et al. (2010a).16 We then calibrate νt to the change in the top 1% wage income concentration as reported by Piketty and Saez (2011). Finally we adjust μt so that average labor pro”
- Taxation and the International Mobility of Inventors (2016, unknown): “findings that the room for higher tax revenue through more progressive taxes is limited in Guner et al. (2014).”