Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300186 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
IFN Working Paper No. 1492
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
This paper develops a comprehensive framework for analyzing the revenue, efficiency and social welfare implications of top income taxation. It generalizes the Saez (2001) formula for the optimal top tax rate by deriving analytical expressions for the Laffer curve and excess burden. Applied to the 2021 U.S. top federal tax bracket, assuming a taxable income elasticity of 0.25, the study finds an excess burden of $101 billion and a maximum potential revenue increase of $111 billion. In contrast, other English-speaking countries and Germany are positioned closer to their Laffer curve peaks, incurring greater efficiency losses, whereas the Nordic countries studied are on the downward-sloping part of the Laffer curve. Additionally, the paper endogenizes the marginal social welfare weight on high-income earners and, following an inverse optimal taxation approach, concludes that in none of the studied countries does the observed top marginal tax rate appear consistent with a conventional welfarist social welfare function.
Subjects: 
income taxation
optimal taxation
Laffer curve
excess burden
JEL: 
H21
H24
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.