Taxation and the Allocation of Talent
Harvard University, Department of Economics - Littauer Center
Department of Economics, Harvard University: Littauer Center
E. Glen Weyl
Microsoft Research New England; University of Chicago
April 3, 2014
Income taxation affects the allocation of talent by blunting the material incentives to enter high-paying professions. If, as the literature suggests, the ratio of social to private product is lower in high-paying professions (e.g., finance and law) than in low-paying professions (e.g., teaching and scientific research), progressive taxation is justified even absent a redistributive motive. Optimal taxes are highly sensitive to the size of externalities, which are currently poorly measured. Under our baseline calibration drawn from the literature, the Reagan tax reforms account for a fifth of the increase in pre-tax top income shares and reduce output.
Number of Pages in PDF File: 64
Keywords: career choice, occupational choice, allocation of talent, optimal income taxation, Pigouvian taxation, Just Desserts, Reagan tax reforms
JEL Classification: D62, H21, H24, J24
Date posted: January 8, 2009 ; Last revised: April 4, 2014
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