EconPapers    
Economics at your fingertips  
 

Optimal Taxation with Rent-Seeking

Casey Rothschild () and Florian Scheuer ()

No 17035, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent policy proposals have suggested taxing top incomes at very high rates on the grounds that some or all of the highest wage earners are engaged in socially unproductive or counterproductive activities, such as externality imposing speculation in the financial sector. To address this, we provide a model in which agents can choose between working in a traditional sector, where private and social products coincide, and a crowdable rent-seeking sector, where some or all of earned income reflects the capture of pre-existing output rather than increased production. We characterize Pareto optimal linear and non-linear income tax systems under the assumption that the social planner cannot or does not observe whether any given individual is a traditional worker or a rent-seeker. We find that optimal marginal taxes on the highest wage earners can remain remarkably modest even if all high earners are socially unproductive rent-seekers and the government has a strong intrinsic desire for progressive redistribution. Intuitively, taxing their effort at a lower rate stimulates their rent-seeking efforts, thereby keeping private returns for other potential rent-seekers low and discouraging further entry.

JEL-codes: D3 D5 D8 E2 E6 H2 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-cta and nep-pub
Note: PE
References: View complete reference list from CitEc
Citations: View citations in EconPapers (35) Track citations by RSS feed

Published as Casey Rothschild & Florian Scheuer, 2016. "Optimal Taxation with Rent-Seeking," The Review of Economic Studies, vol 83(3), pages 1225-1262.

Downloads: (external link)
http://www.nber.org/papers/w17035.pdf (application/pdf)

Related works:
Journal Article: Optimal Taxation with Rent-Seeking (2016) Downloads
Working Paper: Optimal Taxation with Rent-Seeking (2014) Downloads
Working Paper: Optimal Taxation with Rent-Seeking (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:17035

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17035

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-10-14
Handle: RePEc:nbr:nberwo:17035