The Mapmaker's Dilemma in Evaluating High-End Inequality

Abstract

The last thirty years have witnessed rising income and wealth concentration among the top 0.1 percent of the population, leading to intense political debate regarding how, if at all, policymakers should respond. Often, this debate emphasizes the tools of public economics, and in particular optimal income taxation. However, while these tools can help us in evaluating the issues raised by high-end inequality, their extreme reductionism – which, in other settings, often offers significant analytic payoffs – here proves to have serious drawbacks. This paper addresses what we do and don’t learn from the optimal income tax literature regarding high-end inequality, and what other inputs might be needed to help one evaluate the relevant issues.

Keywords: inequality, distribution, high-end inequality, optimal income taxation, tax policy

JEL Classification: A11, A12, A13, D63, H20, H21, H23, K00, K34