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Taxation and the Allocation of Talent

Benjamin B Lockwood

University of Pennsylvania - The Wharton School

Charles Nathanson

Northwestern University - Kellogg School of Management

E. Glen Weyl

Microsoft Research New York City; Yale University

April 25, 2016

Journal of Political Economy, Forthcoming

Taxation affects the allocation of talented individuals across professions by blunting material incentives and thus magnifying non-pecuniary incentives of pursuing a “calling.” Estimates from the literature suggest high-paying professions have negative externalities, whereas low-paying professions have positive externalities. A calibrated model therefore prescribes negative marginal tax rates on middle-class incomes and positive rates on the rich. The welfare gains from implementing such a policy are small and are dwarfed by the gains from profession-specific taxes and subsidies. These results depend crucially on externality estimates and labor-substitution patterns across professions, both of which are very uncertain given existing empirical evidence.

Number of Pages in PDF File: 67

Keywords: occupational choice, allocation of talent, optimal income taxation, Pigouvian taxation, Just Desserts

JEL Classification: D62, H21, H24, J24

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Date posted: January 8, 2009 ; Last revised: April 26, 2016

Suggested Citation

Lockwood, Benjamin B and Nathanson, Charles and Weyl, E. Glen, Taxation and the Allocation of Talent (April 25, 2016). Journal of Political Economy, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1324424 or http://dx.doi.org/10.2139/ssrn.1324424

Contact Information

Benjamin B Lockwood
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
Charles Nathanson
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-467-5141 (Phone)
HOME PAGE: http://www.charlesnathanson.com
Eric Glen Weyl (Contact Author)
Microsoft Research New York City ( email )
641 Avenue of the Americas, 7th Floor
New York, NY 10011
United States
(857) 998-4513 (Phone)
HOME PAGE: http://www.glenweyl.com
Yale University ( email )
28 Hillhouse Ave
New Haven, CT 06520-8268
United States
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