Tax Progressivity and Top Incomes: Evidence from Tax Reforms

61 Pages Posted: 10 Apr 2017

See all articles by Enrico Rubolino

Enrico Rubolino

University of Essex - Institute for Social and Economic Research (ISER)

Daniel Waldenström

Research Institute of Industrial Economics

Multiple version iconThere are 2 versions of this paper

Abstract

We study the link between tax progressivity and top income shares. Using variation from large-scale Western tax reforms in the 1980s and 1990s and the novel synthetic control method, we find large and lasting boosting impacts on top income shares from the progressivity reductions. Effects are largest in the very top groups while earners in the bottom half of the top decile were almost unaffected by the reforms. Cuts in top marginal tax rates account for most of this outcome whereas reduced overall progressivity contributed less. Searching for mechanisms, real income responses as measured by growth in aggregate GDP per capita, registered patents and tax revenues were unaffected by the reforms. By contrast, tax avoidance behavior related to the management of capital incomes in the very income top appears to lie behind the observed effects.

Keywords: taxation, income inequality, tax policy

JEL Classification: D31, H21, H24, H26, H31, H76

Suggested Citation

Rubolino, Enrico and Waldenstrom, Daniel, Tax Progressivity and Top Incomes: Evidence from Tax Reforms. IZA Discussion Paper No. 10666. Available at SSRN: https://ssrn.com/abstract=2949102

Enrico Rubolino (Contact Author)

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Daniel Waldenstrom

Research Institute of Industrial Economics ( email )

P.O. Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/danielw

Register to save articles to
your library

Register

Paper statistics

Downloads
43
Abstract Views
285
PlumX Metrics