Revisiting Taxes on High Incomes

Ayse Imrohoroglu, Cagri Kumru, Jiu Lian and Arm Nakornthab
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Arm Nakornthab: Khon Kaen University

Review of Economic Dynamics, 2023, vol. 51, 1159-1184

Abstract: In this paper, we study income taxation in a model with entrepreneurial activity. We conduct two types of changes in tax policy: changing the overall progressivity of taxes versus changing the tax rate on the richest 1% of the population. Our results indicate that increasing the tax rate on the richest 1% of the population is more effective in raising revenues than increasing the overall progressivity of taxes as it leads to smaller declines in capital and output. We find that incorporating entrepreneurship in generating a reasonable wealth distribution leads to revenue-maximizing progressivity to be smaller than found previously. (Copyright: Elsevier)

Keywords: Entrepreneurship; taxation; progressivity; labor supply (search for similar items in EconPapers)
JEL-codes: E21 H2 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/j.red.2023.11.001

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