What Determines Top Income Shares? The Role of the Interactions between Financial Integration and Tax Policy

Thibault Darcillon

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: This article aims at analyzing the role of the interactions between financial deregulation policies and changes in top tax marginal rates to explain the evolution in top income shares since the 1980s in most OECD countries. I argue that higher financial integration should have an increasing-effect on top income shares by resulting in lower marginal top tax rates. First, international financial integration has gradually contributed to increased tax competition by raising capital mobility. Second, financial integration also reflects higher bargaining power for top earners, pushing for a reduction in marginal top tax rates. Based on instrumental variables and simultaneous equations system regressions, I find strong evidence of my hypothesis: first, financial integration is negatively correlated with higher top marginal tax rates; second, this result seems to explain the negative relationship between marginal top tax rates and top income shares

Keywords: Financial integration, top income shares; tax policy (search for similar items in EconPapers)
JEL-codes: G1 I39 J63 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2016-04
New Economics Papers: this item is included in nep-eec, nep-lab and nep-pbe
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ftp://mse.univ-paris1.fr/pub/mse/CES2016/16032.pdf (application/pdf)

Related works:
Working Paper: What Determines Top Income Shares? The Role of the Interactions between Financial Integration and Tax Policy (2016)
Working Paper: What Determines Top Income Shares? The Role of the Interactions between Financial Integration and Tax Policy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:16032

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