Taxation and the Allocation of Talent

67 Pages Posted: 8 Jan 2009 Last revised: 8 Aug 2016

Benjamin B Lockwood

University of Pennsylvania - The Wharton School

Charles Nathanson

Northwestern University - Kellogg School of Management

E. Glen Weyl

Microsoft Research; Yale University

Date Written: April 25, 2016

Abstract

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.

The supplemental appendix to "Taxation and the Allocation of Talent" by the same authors, available at http://ssrn.com/abstract=13244242819544.

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

JEL Classification: D62, H21, H24, J24

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: https://ssrn.com/abstract=1324424 or http://dx.doi.org/10.2139/ssrn.1324424

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 ( email )

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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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