Journal of Political Economy Vol. 130 No. 9 2022
Taxing Top Incomes in a World of Ideas
Abstract
This paper considers top income taxation when (i) new ideas drive economic growth, (ii) the reward for successful innovation is a top income, and (iii) innovation cannot be perfectly targeted by a research subsidy—think about the business methods of Walmart, the creation of Uber, or the “idea” of Amazon. These conditions lead to a new force affecting the optimal top tax rate: by slowing the creation of new ideas that drive aggregate GDP, top income taxation reduces everyone’s income, not just income at the top. This force sharply constrains both revenue-maximizing and welfare-maximizing top tax rates.
- DOI
- 10.1086/720394
- Volume
- 130
- Issue
- 9
- Pages
- 2227-2274
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref