Trends and Gradients in Top Tax Elasticities: Cross-Country Evidence, 1900–2014

76 Pages Posted: 10 Apr 2017

See all articles by Enrico Rubolino

Enrico Rubolino

University of Lausanne

Daniel Waldenström

Research Institute of Industrial Economics (IFN)

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Abstract

We compile data spanning the period 1900–2014 and up to 30 countries to study long-run patterns in the tax elasticity of top incomes. Our results show that top tax elasticities vary tremendously over time; they were medium-to-low before 1950, virtually zero during the postwar era up to 1980 and have thereafter increased to unprecedented levels. We document a strong income gradient in tax response within the top, underlining the importance to study even small top groups separately. Several mechanisms are investigated. Tax-driven income shifting between wage and capital income is important in the very top. Wars, financial crises, and country-specific effects and trends have bearing on top elasticities whereas standard macroeconomic factors and indicators of "real responses" do not.

Keywords: taxation, income inequality, economic history

JEL Classification: D31, H21, H24, H26, N40

Suggested Citation

Rubolino, Enrico and Waldenström, Daniel, Trends and Gradients in Top Tax Elasticities: Cross-Country Evidence, 1900–2014. IZA Discussion Paper No. 10667, Available at SSRN: https://ssrn.com/abstract=2949103 or http://dx.doi.org/10.2139/ssrn.2949103

Enrico Rubolino (Contact Author)

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

Daniel Waldenström

Research Institute of Industrial Economics (IFN) ( email )

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

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