Taxing the Rich

56 Pages Posted: 8 Jun 2016

See all articles by Augustin Landier

Augustin Landier

HEC

Guillaume Plantin

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: June 6, 2016

Abstract

Affluent households can respond to taxation with means that are not economically viable for the rest of the population, such as sophisticated tax plans and international tax arbitrage. This paper studies an economy in which an inequality-averse social planner faces agents who have access to a tax-avoidance technology with subadditive costs, and who can shape the risk profile of their income as they see fit. Subadditive avoidance costs imply that optimal taxation cannot be progressive at the top. This in turn may trigger excessive risk taking. When the avoidance technology consists in costly migration between two countries that compete fiscally, we show that an endogenous increase in inequality due to risk taking makes progressive taxation more fragile, which vindicates in turn risk taking and can lead to equilibria with regressive tax rates at the top, and high migrations of wealth toward the smaller country.

Suggested Citation

Landier, Augustin and Plantin, Guillaume, Taxing the Rich (June 6, 2016). Available at SSRN: https://ssrn.com/abstract=2791098 or http://dx.doi.org/10.2139/ssrn.2791098

Guillaume Plantin

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
180
Abstract Views
1,402
rank
195,092
PlumX Metrics