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On the Optimal Labor Income Share

Author	: Jakub Growiec
Publisher	:
Total Pages	: 45
Release	: 2019
Genre	: Income distribution
ISBN	:

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Labor's share of income has attracted interest in recent years reflecting its apparent protracted decline. These falls, witnessed across many countries, are usually deemed undesirable. Any such assertion, however, begs the question of what is the socially optimal labor share. We address this question using a micro-founded endogenous growth model calibrated on US data. We find that in our central calibration the socially optimal labor share is 17% (11 pp) above the decentralized equilibrium, calibrated to match the average observed in history. We also study the dependence of both long-run growth equilibria on model parameters and relate our results to Piketty's "laws of capitalism". Finally, we demonstrate that cyclical movements in factor income shares are socially optimal and that the decentralized equilibrium typically does not generate excess volatility.

Optimal Labor Income Taxation

Author	: Thomas Piketty
Publisher	:
Total Pages	:
Release	: 2012
Genre	: Economics
ISBN	:

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This paper reviews recent developments in the theory of optimal labor income taxation. We emphasize connections between theory and empirical work that were initially lacking from optimal income tax theory. First, we provide historical and international background on labor income taxation and means-tested transfers. Second, we present the simple model of optimal linear taxation. Third, we consider optimal nonlinear income taxation with particular emphasis on the optimal top tax rate and the optimal profile of means-tested transfers. Fourth, we consider various extensions of the standard model including tax avoidance and income shifting, international migration, models with rent-seeking, relative income concerns, the treatment of couples and children, and non-cash transfers. Finally, we discuss limitations of the standard utilitarian approach and briefly review alternatives. In all cases, we use the simplest possible models and show how optimal tax formulas can be derived and expressed in terms of sufficient statistics that include social marginal welfare weights capturing society's value for redistribution, behavioral elasticities capturing the efficiency costs of taxation, as well as parameters of the earnings distribution. We also emphasize connections between actual practice and the predictions from theory, and in particular the limitations of both theory and empirical work in settling the political debate on optimal labor income taxation and transfers.

Labor Income Share

Author	: Saumik Paul
Publisher	: Springer Nature
Total Pages	: 281
Release	: 2020-10-01
Genre	: Business & Economics
ISBN	: 981156860X

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This book is about labor income share, which measures the share of national income paid in wages. The global share of income going towards labor is declining, which suggests a more unequal distribution of income. This has sparked debates about fair distribution of personal incomes among academics and policymakers alike. This book joins the discussion by bringing together recent developments in theoretical and empirical research on labor income share and novel insights on the measurement of the labor income share. The aim of this book is to help design policies to reduce inequality and provide useful knowledge to academics, policymakers from government agencies, policy aides in research institutions and think tanks, and broader audiences from public and private organizations.

The Encyclopedia of Taxation & Tax Policy

Author	: Joseph J. Cordes
Publisher	: The Urban Insitute
Total Pages	: 522
Release	: 2005
Genre	: Business & Economics
ISBN	: 9780877667520

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"From adjusted gross income to zoning and property taxes, the second edition of The Encyclopedia of Taxation and Tax Policy offers the best and most complete guide to taxes and tax-related issues. More than 150 tax practitioners and administrators, policymakers, and academics have contributed. The result is a unique and authoritative reference that examines virtually all tax instruments used by governments (individual income, corporate income, sales and value-added, property, estate and gift, franchise, poll, and many variants of these taxes), as well as characteristics of a good tax system, budgetary issues, and many current federal, state, local, and international tax policy issues. The new edition has been completely revised, with 40 new topics and 200 articles reflecting six years of legislative changes. Each essay provides the generalist with a quick and reliable introduction to many topics but also gives tax specialists the benefit of other experts' best thinking, in a manner that makes the complex understandable. Reference lists point the reader to additional sources of information for each topic. The first edition of The Encyclopedia of Taxation and Tax Policy was selected as an Outstanding Academic Book of the Year (1999) by Choice magazine."--Publisher's website.

Tax Systems

Author	: Joel Slemrod
Publisher	: MIT Press
Total Pages	: 235
Release	: 2013-12-13
Genre	: Business & Economics
ISBN	: 0262026724

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An approach to taxation that goes beyond an emphasis on tax rates to consider such aspects as administration, compliance, and remittance. Despite its theoretical elegance, the standard optimal tax model has significant limitations. In this book, Joel Slemrod and Christian Gillitzer argue that tax analysis must move beyond the emphasis on optimal tax rates and bases to consider such aspects of taxation as administration, compliance, and remittance. Slemrod and Gillitzer explore what they term a tax-systems approach, which takes tax evasion seriously; revisits the issue of remittance, or who writes the check to cover tax liability (employer or employee, retailer or consumer); incorporates administrative and compliance costs; recognizes a range of behavioral responses to tax rates; considers nonstandard instruments, including tax base breadth and enforcement effort; and acknowledges that tighter enforcement is sometimes a more socially desirable way to raise revenue than an increase in statutory tax rates. Policy makers, Slemrod and Gillitzer argue, would be well advised to recognize the interrelationship of tax rates, bases, enforcement, and administration, and acknowledge that tax policy is really tax-systems policy.

Optimal Labor Income Taxation Under Maximin

Author	: Laurence Jacquet
Publisher	:
Total Pages	: 0
Release	: 2010
Genre	:
ISBN	:

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This paper assumes the standard optimal income tax model of Mirrlees (Review of Economic Studies, 1971). It gives fairly mild conditions under which the optimal nonlinear labor income tax profile derived under maximin has higher marginal tax rates than the ones derived with welfarist criteria that sum over the population any concave transformation of individual utilities. This strict dominance result is always valid close to the bounds of the skill distribution and almost everywhere (except at the upper bound) when quasilinear-in-consumption preferences are assumed.

The New Dynamic Public Finance

Author	: Narayana R. Kocherlakota
Publisher	: Princeton University Press
Total Pages	: 230
Release	: 2010-07-01
Genre	: Business & Economics
ISBN	: 1400835275

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Optimal tax design attempts to resolve a well-known trade-off: namely, that high taxes are bad insofar as they discourage people from working, but good to the degree that, by redistributing wealth, they help insure people against productivity shocks. Until recently, however, economic research on this question either ignored people's uncertainty about their future productivities or imposed strong and unrealistic functional form restrictions on taxes. In response to these problems, the new dynamic public finance was developed to study the design of optimal taxes given only minimal restrictions on the set of possible tax instruments, and on the nature of shocks affecting people in the economy. In this book, Narayana Kocherlakota surveys and discusses this exciting new approach to public finance. An important book for advanced PhD courses in public finance and macroeconomics, The New Dynamic Public Finance provides a formal connection between the problem of dynamic optimal taxation and dynamic principal-agent contracting theory. This connection means that the properties of solutions to principal-agent problems can be used to determine the properties of optimal tax systems. The book shows that such optimal tax systems necessarily involve asset income taxes, which may depend in sophisticated ways on current and past labor incomes. It also addresses the implications of this new approach for qualitative properties of optimal monetary policy, optimal government debt policy, and optimal bequest taxes. In addition, the book describes computational methods for approximate calculation of optimal taxes, and discusses possible paths for future research.

Optimal Labor Income Taxation

Author	: Dingquan Miao
Publisher	:
Total Pages	:
Release	: 2022
Genre	:
ISBN	:

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I analyze the role of the distribution of skills in shaping optimal nonlinear income tax schedules. I use theoretical skill distributions as well as empirical skill distributions for 14 OECD countries. I find that a more dispersed log-normal skill distribution implies a more progressive optimal tax schedule. Optimal tax rates should be lower throughout if a greater number of unskilled agents cluster at the bottom, and the scheme is more progressive if a greater number of agents locate at the top. I also highlight how the impact of the skill distribution is affected by the form of the social welfare function and the utility function. The findings using empirical skill distributions suggest that the results are sensitive to the type of statistical estimator used to estimate the skill distribution.

Optimal Labor Income Taxation in Poland - the Case of High Income Earners

Author	: Maciej Konrad Dudek
Publisher	:
Total Pages	: 0
Release	: 2020
Genre	:
ISBN	:

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In this paper we present solutions to the optimal taxation problem in Poland in the case of high income earners. We characterize the actual data provided by the Polish Tax Authority and show that it is thick-tailed in the upper end of the distribution. Specifically, we show that income distribution in Poland can be approximated with a Pareto distribution with parameter equal to 3:44; which makes the Saez's formula applicable. We show that the value of the optimal marginal tax rates in Poland ranges between 16% and 60% for high income earners depending on the value of the elasticity with respect to the wage. Moreover, we show that the value of the optimal marginal tax rate for high income earners can be close 60% when one accepts - an empirically viable - relatively low value of the elasticity of labor supply with respect to the wage.

Optimal Taxation of Top Labor Incomes

Author	: Thomas Piketty
Publisher	:
Total Pages	: 0
Release	: 2011
Genre	: Elasticity (Economics)
ISBN	:

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This paper analyzes the problem of optimal taxation of top labour incomes. We develop a model where top incomes respond to marginal tax rates through three channels: (1) the standard supply-side channel through reduced economic activity, (2) the tax avoidance channel, (3) the compensation bargaining channel through efforts in influencing own pay setting. We derive the optimal top tax rate formula as a function of the three elasticities corresponding to those three channels of responses. The first elasticity (supply side) is the sole real factor limiting optimal top tax rates. The optimal tax system should be designed to minimize the second elasticity (avoidance) through tax enforcement and tax neutrality across income forms, in which case the second elasticity becomes irrelevant. The optimal top tax rate increases with the third elasticity (bargaining) as bargaining efforts are zero-sum in aggregate. We then analyze top income and top tax rate data in 18 OECD countries. There is a strong correlation between cuts in top tax rates and increases in top 1% income shares since 1975, implying that the overall elasticity is large. But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model. This suggests that the first elasticity is modest in size and that the overall effect comes mostly from the third elasticity. Consequently, socially optimal top tax rates might possibly be much higher than what is commonly assumed.

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On The Optimal Labor Income Share