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Incentives, Globalization, and Redistribution

Andreas Haufler () and Carlo Perroni
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Carlo Perroni: University of Warwick and CESifo

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We offer a new explanation for why taxes have become less progressive in many countries in parallel with an increase in income inequality. When performancebased compensation differentials are needed to incentivize effort, redistribution through progressive income taxes becomes less precisely targeted. Taxation reduces after-tax income inequality but undermines incentive contracts, lowering effort and raising pre-tax income differentials. Market integration can widen the spread of project returns and make contract choices more responsive to changes in the level of taxation, resulting in a lower optimum income tax rate even when individuals are not inter-jurisdictionally mobile.

Keywords: Redistributive Taxation; Performance-based Contracts; Market Integration JEL codes: H21; F15; D63 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cta and nep-ltv
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https://warwick.ac.uk/fac/soc/economics/research/w ... p_1282_-_perroni.pdf

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Working Paper: Incentives, Globalization, and Redistribution (2020) Downloads
Working Paper: Incentives, Globalization, and Redistribution (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1282

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