Click here to load reader

Taxable Income Elasticities - University of California ...saez/course131/taxableincome.pdf · TAXABLE INCOME ELASTICITIES Modern public nance literature focuses on taxable income

  • View
    2

  • Download
    0

Embed Size (px)

Text of Taxable Income Elasticities - University of California ...saez/course131/taxableincome.pdf ·...

  • Taxable Income Elasticities

    131 Undergraduate Public Economics

    Emmanuel Saez

    UC Berkeley

    1

  • TAXABLE INCOME ELASTICITIES

    Modern public finance literature focuses on taxable income

    elasticities instead of hours/participation elasticities

    Two main reasons:

    1) What matters for policy is the total behavioral response

    to tax rates (not only hours of work but also occupational

    choices, avoidance, etc.)

    2) Data availability: taxable income is precisely measured in

    tax return data

    Recent overview of this literature: Saez-Slemrod-Giertz JEL’12

    2

  • FEDERAL US INCOME TAX CHANGES

    Tax rates change frequently over time

    Biggest tax rate changes have happened at the top

    Key recent reforms:

    Reagan I: ERTA’81: top rate ↓ 70% to 50% (1981-1982)

    Reagan II: TRA’86: top rate ↓ 50% to 28% (1986-1988)

    Clinton: OBRA’93: top rate ↑ 31% to 39.6% (1992-1993)

    Bush: EGTRRA ’01: top rate ↓ 39.6% to 35% (2001-2003)

    Taxable Income = Ordinary Income + Realized Capital Gains- Deductions ⇒ Each component can respond to MTRs

    3

  • LONG-RUN EVIDENCE IN THE US

    Goal: evaluate whether top pre-tax incomes respond to changes

    in one minus the marginal tax rate (=net-of-tax rate)

    Focus is on pre-tax income before deductions and excluding

    realized capital gains (because they are taxed at lower separate

    rate)

    Piketty-Saez QJE’03 estimate top income shares since 1913

    [IRS tabulations for 1913-1959, IRS micro-files since 1960]

    Piketty-Saez-Stantcheva AEJ’13 estimate the effect of top

    MTR on top income shares in the US since 1913

    5

  • 01

    02

    03

    04

    05

    06

    07

    08

    09

    01

    00

    Ma

    rgin

    al T

    ax R

    ate

    s (

    %)

    05

    10

    15

    20

    25

    To

    p 1

    % I

    nco

    me

    Sh

    are

    s (

    %)

    1913 1923 1933 1943 1953 1963 1973 1983 1993 2003Year

    Top 1% (excluding Capital Gains) Top MTR

    Top 1% Income Share and Top MTR

  • INCOME SHARE BASED ELASTICITY ESTIMATION

    1) Tax Reform Episode: Compare top pre-tax income sharesat t0 (before reform) and t1 (after reform)

    e =log sht1 − log sht0

    log(1− τt1)− log(1− τt0)where sht is top income share and τt is the average MTR fortop group in year t

    Identification assumption: absent tax change, sht0 = sht1

    2) Full Time Series: Run regression:

    log sht = α+ e · log(1− τt) + εtand adding time controls to capture non-tax related top in-come share trends

    ID assumption: non-tax related changes in sht ⊥ τt7

  • LONG-RUN EVIDENCE IN THE US

    1) Clear correlation between top incomes and top income rates

    both in several short-run tax reform episodes and in the long-

    run [but hard to assess long-run tax causality]

    2) Correlation largely absent below the top 1% (such as the

    next 9%)

    3) Top income shares sometimes do not respond to large tax

    rate cuts [e.g., Kennedy Tax Cuts of early 1960s]

    4) Top income shares can change substantially for non-tax

    related reasons: (a) Great Depression 1928-1931 (MTR stable

    and top income shares ↓, (b) 1990s: MTR ↑ and top incomeshares ↑

    8

  • FISCAL EXTERNALITIES

    A Fiscal externality is a change in tax revenue that occurs in

    any tax base zB other than z due to the behavioral response

    to the tax change in the initial base z

    (1) zB can be a different tax base in the same time period

    (such as corporate income tax base) ⇒ Income shifting

    (2) zB can be the same tax base in a different time period

    (such as future income) ⇒ Inter-temporal Substitution

    Efficiency and optimal tax analysis depend on effect on total

    tax revenue

    9

  • Inter-Temporal Substitution: Realized Capital Gains

    Realized capital gains occur when individual sells asset at ahigher price than buying price

    Individuals have flexibility in the timing of asset sales and cap-ital gains realizations

    TRA’86 lowered the top tax rate on ordinary income from50% to 28% but increased the top tax rate on realized capitalgains from 20% to 28%

    ⇒ Surge in capital gains realizations in 1986 [and depressedcapital gains in 1987] to take advantage of low 20% rate before28% tax rate applies

    ⇒ Short-term elasticity is very large but long-term elasticityis certainly much smaller

    10

  • 0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    1913

    1918

    1923

    1928

    1933

    1938

    1943

    1948

    1953

    1958

    1963

    1968

    1973

    1978

    1983

    1988

    1993

    1998

    2003

    2008

    Top

    MTR

    (Fed

    eral

    Indi

    vidu

    al In

    com

    e Ta

    x)

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    US Top MTR ordinary income vs. capital gains

    Top MTR Top MTR (capital gains)

    Source: statistics computed by the author

  • 0%

    2%

    4%

    6%

    8%

    10%

    12% 19

    16

    1921

    19

    26

    1931

    19

    36

    1941

    19

    46

    1951

    19

    56

    1961

    19

    66

    1971

    19

    76

    1981

    19

    86

    1991

    19

    96

    2001

    20

    06

    2011

    Capital Gains

    Capital Income

    Business Income

    Salaries

    Source: Piketty and Saez, 2003 updated to 2011. Series based on pre-tax cash market income including or excluding realized capital gains, and always excluding government transfers.

                                                 US  Top  0.1%  Pre-‐Tax  Income  Share  and  Composi:on

  • Inter-Temporal Substitution: Stock-Options

    Goolsbee JPE’00 analyzes CEO pay around the 1993 Clinton

    top tax rate increase [from 31% in 1992 to 39.6% in 1993

    announced in late 1992] on executive pay

    Finds a strong re-timing response through stock-option ex-

    ercise (executive can choose the timing of their stock-option

    exercises)

    ⇒ Large short-term response due to re-timing, small long-termresponse

    13

  • Source: Goolsbee (2000), p. 365

  • STOCK OPTIONS

    Major form of compensation of US top executives. Theoretical

    goal is to motivate executives to increase the value of the

    company (stock price P (t))

    Stock-option is granted at date t0 allow executives to buy

    N company shares at price P (t0) on or after t1 (in general

    t1 − t0 ' 3− 5 years = vesting period)

    Executive exercise option at (chosen) time t2 ≥ t1: pays N ·P (t0) to get shares valued N ·P (t2). Exercise profit N [P (t2)−P (t0)] (considered and taxed as wage income in the US)

    After t2, executive owns N shares, eventually sold at time

    t3 ≥ t2: realized capital gain N [P (t3)−P (t2)] (taxed as capitalgains)

    15

  • Income Shifting: Corporate And Individual Tax Base

    Businesses can be organized as corporations or unincorpo-rated businesses [also called pass-through entities]

    Corporate profits are first taxed by corporate income tax [rateτc ]

    Net-of-tax profits are taxed again when finally distributed toshareholders. 2 distribution options:

    a) dividends [tax rate τd]

    b) retained profits increase stock price: shareholders realizecapital gains when finally selling the stock [tax rate τcg]

    For unincorporated businesses (sole proprietorships, part-nerships, S-corporations) profits are taxed directly and solelyas individual income (rate τi)

    16

  • CORPORATE AND INDIVIDUAL TAX BASE

    Corporate form best if (1− τc)(1− τcg) > 1− τi

    US fed taxes in 2013: τc = 35%, τcg = 20% (less because of

    deferral value), τd = 20% τi = 39.6%, (top rate)

    Today, individual form is best

    Before TRA’86 (and especially before ERTA’81), top individ-

    ual rate τi was much higher so corporate form was best

    Shifts from corporate to individual base increases business

    profits at the expense of dividends and realized capital gains

    Large part of TRA’86 response is due to such shifting

    17

  • The Top 0.01% US Income Share, Composition, and MTR

    0.0%

    0.5%

    1.0%

    1.5%

    2.0%

    2.5%

    3.0%

    3.5%19

    6019

    6219

    6419

    6619

    6819

    7019

    7219

    7419

    7619

    7819

    8019

    8219

    8419

    8619

    8819

    9019

    9219

    9419

    9619

    9820

    0020

    0220

    0420

    06

    Top

    0.01

    % s

    hare

    and

    com

    posi

    tion

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    Mar

    gina

    l Tax

    Rat

    e fo

    r the

    top

    0.01

    %

    Wages S-Corp.

    Partnership Sole Prop.

    Dividends Interest

    Other MTR

    Source: Saez et al. (2010)

  • Bottom Line on Behavioral Responses to Taxes

    1) Clear evidence of strong responses to tax changes due to

    re-timing or income shifting

    2) Heterogeneity in tax responses due to heterogeneity in shift-

    ing opportunities [e.g., Kennedy tax cuts of ’61 vs. TRA’86]

    3) Top income shares can change drastically without changes

    in tax rates [e.g., 1993-2000]

    4) Difficult to know from single country time series the role

    played by top tax rate cuts in the surge of top incomes ⇒International evidence can cast further useful evidence

    19

  • TOP RATES AND TOP INCOMES

    INTERNATIONAL EVIDENCE

    1) Use pre-tax top 1% income share data from 18 OECD coun-

    tries since 1960 using the World Top Incomes Database

    2) Compute top (statutory) individual income tax rates using

    OECD data [including both central and local income taxes].

    Plot top 1% pre-tax income share against top MTR in 1960-4,

    in 2005-9, and 1960-4 vs. 2005-9

    20

  • AustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustralia

    CanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanada

    DenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmark

    FinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinland FranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance

    GermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermany

    IrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland

    ItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItaly

    JapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapan

    NetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlands

    NZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorway

    PortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugal

    SpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpain

    SwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSweden

    SwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerland

    UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUS

    Elasticity= .07 (.15)

    46

    81

    01

    21

    41

    61

    8T

    op

    1%

    In

    co

    me

    Sh

    are

    (%

    )

    40 50 60 70 80 90Top Marginal Tax Rate (%)

    A. Top 1% Share and Top Marginal Tax Rate in 1960−4

  • AustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustralia

    CanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanada

    DenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmark

    FinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance

    GermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland

    ItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItaly

    JapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapan

    NetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlands

    NZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZ

    NorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorway

    PortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugal

    SpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpain

    SwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSweden

    SwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerland

    UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUK

    USUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUS

    Elasticity= 1.90 (.43)

    46

    81

    01

    21

    41

    61

    8T

    op

    1%

    In

    co

    me

    Sh

    are

    (%

    )

    40 50 60 70 80 90Top Marginal Tax Rate (%)

    B. Top 1% Share and Top Marginal Tax Rate in 2005−9

  • AustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustralia

    CanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanada

    DenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmark

    FinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinland

    FranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance

    GermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermany

    IrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland

    ItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItaly

    JapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapan

    NetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlands

    NZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZ

    NorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugal

    SpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpain

    SwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSweden

    SwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerland

    UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUK

    USUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSElasticity= .47 (.11)

    02

    46

    81

    0C

    ha

    ng

    e in

    To

    p 1

    % I

    nco

    me

    Sh

    are

    (p

    oin

    ts)

    −40 −30 −20 −10 0 10Change in Top Marginal Tax Rate (points)

    Change in Top Tax Rate and Top 1% Share, 1960-4 to 2005-9

  • TOP RATES AND TOP INCOMES EVIDENCE

    1) Pre-tax Top income shares have increased significantly in

    some but not all countries [Atkinson-Piketty-Saez JEL’11]

    2) Top tax rates have come down significantly in a number of

    countries since 1960s

    3) Correlation between 1) and 2) is strong but not perfect:

    lower top tax rates are a necessary but not sufficient condition

    for surge in top incomes

    22

  • ECONOMIC EFFECTS OF TAXING THE TOP 1%

    Strong empirical evidence that pre-tax top incomes are af-fected by top tax rates

    3 potential scenarios with very different policy consequences

    1) Supply-Side: Top earners work less and earn less whentop tax rate increases ⇒ Top tax rates should not be too high

    2) Tax Avoidance/Evasion: Top earners avoid/evade morewhen top tax rate increases

    ⇒ a) Eliminate loopholes, b) Then increase top tax rates

    3) Rent-seeking: Top earners extract more pay (at the ex-pense of the 99%) when top tax rates are low ⇒ High top taxrates are desirable

    23

  • Real changes vs. tax Avoidance?

    (Piketty-Saez-Stantcheva AEJ’13)

    Correlation between pre-tax top incomes and top tax rates

    If this is due to tax avoidance, real top income shares were

    as high as today in the 1960s-70s but top earners reported a

    smaller fraction of their incomes [draw graph]

    ⇒ correlation should be much stronger when using narrow tax-able income definition than when using comprehensive income

    definition (including realized capital gains)

    Empirical correlation is very similar ruling out the pure tax

    avoidance scenario

    24

  • 01

    02

    03

    04

    05

    06

    07

    08

    09

    01

    00

    Ma

    rgin

    al T

    ax R

    ate

    s (

    %)

    05

    10

    15

    20

    25

    To

    p 1

    % I

    nco

    me

    Sh

    are

    s (

    %)

    1913 1923 1933 1943 1953 1963 1973 1983 1993 2003Year

    Top 1% Share Top MTR

    Top 1% (excl. KG) MTR K gains

    Tax Avoidance: Top 1% Income Shares and Top MTR

  • Supply-Side or Rent-Seeking?(Piketty-Saez-Stantcheva AEJ’13)

    Correlation between pre-tax top incomes and top tax rates

    If rent-seeking: growth in top 1% incomes should come at theexpense of bottom 99% (and conversely)

    Two macro-preliminary tests:

    1) In the US, top 1% incomes grow slowly from 1933 to 1975and fast afterwards. Bottom 99% incomes grow fast from1933 to 1975 and slowly afterwards ⇒ Consistent with rent-seeking effects

    2) Look at cross-country correlation between economic growthand top tax rate cuts ⇒ No correlation supports rent-seeking

    One micro-test using CEO pay data

    26

  • 01

    02

    03

    04

    05

    06

    07

    08

    09

    01

    00

    Ma

    rgin

    al T

    ax R

    ate

    (%

    )

    01

    00

    20

    03

    00

    40

    05

    00

    Re

    al In

    co

    me

    pe

    r a

    du

    lt (

    19

    13

    =1

    00

    )

    1913 1923 1933 1943 1953 1963 1973 1983 1993 2003Year

    Top 1% Top MTR

    Bottom 99%

    Top 1% and Bottom 99% Income Growth

  • Top tax rates and average growth 1960-2009

    AustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanada DenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmark

    FinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinland

    FranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance GermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermany

    IrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland

    ItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItaly

    JapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapan

    NetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlands

    NZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZ

    NorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorway

    PortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugal

    SpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpain

    SwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSweden

    SwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerland

    UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUS

    12

    34

    GD

    P p

    er c

    apita

    real

    ann

    ual g

    row

    th (%

    )

    -40 -30 -20 -10 0 10Change in Top Marginal Tax Rate (points)

    A. Growth and Change in Top Marginal Tax Rate

    Piketty, Saez & Stantcheva () Three Elasticities November 2012 34 / 62

  • Top tax rates and average growth 1960-2009

    AustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaAustraliaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanadaCanada DenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmarkDenmark

    FinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinlandFinland

    FranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFranceFrance

    GermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermanyGermany

    IrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIrelandIreland

    ItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItalyItaly

    JapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapanJapan NetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlandsNetherlands

    NZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZNZ

    NorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorwayNorway

    PortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalPortugalSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpainSpain

    SwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSwedenSweden

    SwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerlandSwitzerland

    UKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUKUK

    USUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUSUS

    12

    34

    GD

    P p

    er c

    apita

    real

    ann

    ual g

    row

    th (%

    )

    -40 -30 -20 -10 0 10Change in Top Marginal Tax Rate (points)

    B. Growth (adjusted for initial 1960 GDP)

    Piketty, Saez & Stantcheva () Three Elasticities November 2012 35 / 62

  • INTERNATIONAL CEO PAY EVIDENCE

    Recent micro-data for 2006 gathered by Fernandes, Ferreira,

    Matos, Murphy RFS’12.

    1) CEO pay across countries strongly negatively correlated

    with top tax rates

    2) Correlation remains as strong even when controlling for

    firms’ characteristics and performance

    ⇒ Consistent with rent-seeking effects

    29

  • Australia

    Belgium

    Canada

    France

    Germany

    Ireland

    Italy

    Netherlands

    Norway

    Sweden

    Switzerland

    United Kingdom

    United States Elasticity= 1.97 (.27)1.

    01.

    52.

    02.

    53.

    03.

    5C

    EO p

    ay($

    milli

    on, l

    og-s

    cale

    )

    .4 .5 .6 .7 .8Top Income Marginal Tax Rate

    A. Average CEO compensation

    Piketty, Saez & Stantcheva () Three Elasticities November 2012 50 / 62

  • Australia

    Belgium

    Canada

    France

    Germany

    Ireland

    Italy

    Netherlands

    Norway

    Sweden

    Switzerland

    United Kingdom

    United States

    Elasticity= 1.90 (.29)1.

    01.

    52.

    02.

    53.

    03.

    5C

    EO

    pay

    ($ m

    illio

    n, lo

    g-sc

    ale)

    with

    con

    trols

    .4 .5 .6 .7 .8Top Income Marginal Tax Rate

    B. Average CEO compensation with controls

    Piketty, Saez & Stantcheva () Three Elasticities November 2012 51 / 62

  • Tax Induced International Migration

    Public debate concern that top skilled individuals move to lowtax countries (e.g., in EU context) or low tax states (withinUS Federation)

    Migration concern bigger in public debate than supply-sidewithin a country debate

    Little work on tax induced international migration of top skilledworkers

    Hard to get data but interesting variation due to proliferationof special low tax schemes for highly paid foreigners in Europe

    Kleven-Landais-Saez AER’13 look at football players in Eu-rope (highly mobile group, many tax reforms) ⇒ Find signif-icant migration responses to taxes after football market wasde-regulated in ’95

    31

  • KLEVEN-LANDAIS-SAEZ-SCHULTZ ’13

    Exploit the 1991 tax scheme in Denmark: high earnings immi-grants (≥ 103,000 Euros/year) taxed at flat 25% rate (insteadof regular tax with top 59% rate) for 3 years

    Use population wide Danish tax data and DD strategy: com-pare immigrants above eligibility earnings threshold (treat-ment) to immigrants below threshold (control)

    Key Finding: Scheme doubles the number of highly paidforeigners in Denmark relative to controls

    ⇒ Elasticity of migration with respect to the net-of-tax rateabove one (much larger than the within country elasticity ofearnings)

    ⇒ Tax coordination will be key to preserve progressive taxationin the European Union

    32

  • Figure 3: Total number of foreigners in different income groups

    01

    00

    02

    00

    03

    00

    04

    00

    0#

    of

    fore

    ign

    ers

    19

    80

    19

    81

    19

    82

    19

    83

    19

    84

    19

    85

    19

    86

    19

    87

    19

    88

    19

    89

    19

    90

    19

    91

    19

    92

    19

    93

    19

    94

    19

    95

    19

    96

    19

    97

    19

    98

    19

    99

    20

    00

    20

    01

    20

    02

    20

    03

    20

    04

    20

    05

    20

    06

    20

    07

    20

    08

    Control 1 Control 2 Treatment

    Control 1= annualized income between .8 and .9 of thresholdControl 2= annualized income between .9 and .995 of threshold.

    Source: Diamond and Saez JEP'11

  • REFERENCES

    Atkinson, A., F. Alvaredo, T. Piketty and E. Saez The World Top IncomesDatabase, (web)

    Atkinson, A., T. Piketty and E. Saez “Top Incomes in the Long Run ofHistory”, Journal of Economic Literature, 49(1), 2011, 3-71. (web)

    Goolsbee, A. “What Happens When You Tax the Rich? Evidence fromExecutive Compensation”, Journal of Political Economy, Vol. 108, 2000,352-378. (web)

    Gordon, R.H. and J. Slemrod “Are “Real” Responses to Taxes SimplyIncome Shifting Between Corporate and Personal Tax Bases?”, NBERWorking Paper No. 6576, 2000. (web)

    Kleven, Henrik, Camille Landais, and Emmanuel Saez “Taxation and In-ternational Mobility of Superstars: Evidence from the European FootballMarket,” NBER Working Paper No. 16545, November 2010, revised June2011. (web)

    Kleven, Henrik, Camille Landais, Emmanuel Saez, and Esben Schultz“Taxation and International Migration of Top Earners: Evidence from theForeigner Tax Scheme in Denmark,” preliminary draft, November 2011.(web)

    34

    http://g-mond.parisschoolofeconomics.eu/topincomes/http://elsa.berkeley.edu/~saez/atkinson-piketty-saezJEL10.pdfhttp://links.jstor.org/stable/pdfplus/3038281.pdfhttp://www.nber.org/papers/w6576http://elsa.berkeley.edu/~saez/kleven-landais-saezJune11football.pdfhttp://elsa.berkeley.edu/~saez/kleven-landais-saez-schultz1_1_11denmark.pdf

  • Piketty, T. and E. Saez “Income Inequality in the United States, 1913-1998”, Quarterly Journal of Economics, Vol. 116, 2003, 1-39. (web)

    Piketty, Thomas, Emmanuel Saez, and Stefanie Stantcheva “Optimal Tax-ation of Top Labor Incomes: A Tale of Three Elasticities,” NBER WorkingPaper No. 17616, November 2011. (web)

    Saez, E., J. Slemrod, and S. Giertz (2012) “The Elasticity of TaxableIncome with Respect to Marginal Tax Rates: A Critical Review,” Journalof Economic Literature (web)

    http://links.jstor.org/stable/pdfplus/25053897.pdfhttp://www.nber.org/papers/w17616.pdfhttp://elsa.berkeley.edu/~saez/saez-slemrod-giertzJEL10final.pdf