Abstract
This paper argues that high marginal labor income tax rates are an effective tool for social insurance even when households have high labor supply elasticity, make dynamic savings decisions, and policies have general equilibrium effects. We construct a large scale Overlapping Generations Model with uninsurable labor productivity risk, show that it has a realistic wealth distribution and then numerically characterize the optimal top marginal rate. We find that marginal tax rates for top 1% earners of close to 90% are optimal as long as the earnings and wealth distributions display a degree of concentration as observed in US dataHigh Marginal Tax Rates on the Top 1%?
Lessons from a Life Cycle Model with Idiosyncratic Income Risk
Fabian Kindermann, University of Bonn and Netspar, and Dirk Krueger, University of Pennsylvania, CEPR, CFS, NBER and Netspar
January 23, 2015
ht Clonal
If you base your decision on mainstream rational decisions, then you're always onto a loser.
ReplyDeleteAs usual this sort of modelling fails to take into account that rich people talk to each other and co-ordinate their response.