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

Daniel Waldenström

Research Institute of Industrial Economics

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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 Waldenstrom, 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

Enrico Rubolino (Contact Author)

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

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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

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