Working Paper Series
Enrico Rubolino and Daniel Waldenström
Tax Progressivity and Top Incomes: Evidence from Tax Reforms
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: Income inequality; Tax policy; (follow links to similar papers)
JEL-Codes: H21; H24; H26; (follow links to similar papers)
59 pages, March 27, 2017
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