EconPapers    
Economics at your fingertips  
 

Higher Taxes at the Top: The Role of Entrepreneurs

Bettina Brueggemann
Additional contact information
Bettina Brueggemann: Goethe University Frankfurt

Authors registered in the RePEc Author Service: Bettina Brüggemann

No 332, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: This paper contributes to the recent and growing literature on optimal top marginal income tax rates. It computes optimal marginal tax rates for top earners in a Bewley-Aiyagari type economy explicitly accounting for entrepreneurs. Entrepreneurs make up more than one third of the highest-earning one percent in the income distribution despite representing less than ten percent of the population. They are thus disproportionately affected by an increase in the top marginal income tax rate. Since entrepreneurs overall also employ half of the private-sector workforce, such policy changes can have important repercussions for aggregate labor demand and productivity. Nonetheless, the welfare maximizing top marginal tax rate amounts to 82.5 percent, and the revenue maximizing one to 90 percent. A steady state comparison between the benchmark economy featuring the current US tax system and the economy with the welfare maximizing top marginal tax rate illustrates the underlying mechanisms. The substantial increase in taxes leads to a large degree of redistribution, yielding sizable welfare gains for low-income households. Lower equilibrium wages benefit medium-sized entrepreneurs and enable them to grow, such that all entrepreneurs except those directly affected by the higher tax experience considerable welfare gains.

Date: 2016
New Economics Papers: this item is included in nep-cse, nep-dge, nep-ent, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2016/paper_332.pdf (application/pdf)

Related works:
Working Paper: Higher Taxes at the Top: The Role of Entrepreneurs (2017) 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:red:sed016:332

Access Statistics for this paper

More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2020-10-14
Handle: RePEc:red:sed016:332