Taxation and the Allocation of Talent
Harvard University, Department of Economics - Littauer Center
Northwestern University - Kellogg School of Management
E. Glen Weyl
Microsoft Research New England; University of Chicago
June 4, 2015
Taxation affects the allocation of talented individuals across occupations by blunting material incentives and thus relatively magnifying the non-pecuniary benefits of pursuing a "calling.'' Estimates from the literature suggest that high-paying professions pursued by these individuals have negative externalities while low-paying professions have positive externalities. As a result, a calibrated model indicates that total wealth is maximized by subsidies on middle class incomes and realistic tax rates on the rich. This result is robust to many uncertain features of the environment, though depends crucially on externality estimates and substitution patterns across professions, both of which deserve greater empirical study.
Number of Pages in PDF File: 52
Keywords: occupational choice, allocation of talent, optimal income taxation, Pigouvian taxation, Just Desserts
JEL Classification: D62, H21, H24, J24
Date posted: January 8, 2009 ; Last revised: June 23, 2015
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