individual taxpayer response to tax cuts 1982 1984 with implications for the revenue maximizing tax rate abstract this paper measures the response of taxpayers to the u s personal rate reductions from 1982 to 1984 a baseline income distribution is created to describe what level and distribution could be expected in the absence of tax changes comparison of this baseline with actual tax return data shows that at least one sixth and probably one quarter of the revenue ascribable to the rate reductions was recouped by changes in taxpayer behavior the data also show that federal income tax revenue would have been maximized at a tax rate of about 35 percent and total income tax revenue maximized at a total tax rate of about 40 percent

taxing top ceo incomes we use a firm ceo assignment framework to model the market for ceo effective labor in the model s equilibrium more talented ceos match with and supply more effort to larger firms taxation of ceo incomes affects the equilibrium pricing of ceo effective labor and hence spills over and affects firm profits absent the ability to tax profits or a direct concern for firm owners a standard prescription for high marginal income taxes emerges however given such an ability or concern the optimal marginal tax rates are much lower

income inequality and education revisited persistence endogeneity and heterogeneity this article presents new results on the relationship between income inequality and education expansion that is increasing average years of schooling and reducing inequality of schooling when d

income inequality in france 1901 1998 this paper uses data from income tax returns 1915 98 wage tax returns 1919 98 and inheritance tax returns 1902 94 in order to compute homogeneous yearly estimates of income wage and wealth inequality for twentieth century france the main conclusion is that the decline in income inequality that took place during the first half of the century was mostly accidental in france and possibly in a number of other countries as well wage inequality has been extremely stable in the long run and the secular decline in income inequality is for the most part a capital income phenomenon holders of large fortunes were badly hurt by major shocks during the 1914 45 period and they were never able to fully recover from these shocks probably because of the dynamic effects of progressive taxation on capital accumulation and pretax income inequality

the effect of managerial litigation risk on earnings warnings evidence from a natural experiment we examine the causal effect of managerial litigation risk on managers disclosure of earnings warnings in the face of large earnings shortfalls exploring the staggered adoption of universal demand ud laws as an exogenous decrease in litigation risk we find that the adoption leads to a decrease in managers issuance of earnings warnings especially among firms facing a higher litigation risk prior to the adoption in contrast we find no change in managers tendency to alert investors of impending large positive earnings surprises collectively our results provide causal evidence that higher litigation risk incentivizes managers to issue more earnings warnings our results differ from bourveau et al s finding of an increase in the frequency of management earnings forecasts after the adoption of ud laws we reconcile our findings with theirs by demonstrating that the effect of adopting ud laws on management earnings forecasts depends critically on forecast horizon the adoption increases long horizon forecasts but decreases short horizon forecasts

the transition to the knowledge economy labor market institutions and income inequality in advanced democracies the transition from fordism to the knowledge economy in the world s advanced democracies was underpinned by the revolution in information and communications technology ict the introduction and rapid diffusion of ict pushed up wages for college educated workers with complementary skills and allowed top managers and ceos to reap greater rewards for their own talents despite these common pressures income inequality did not rise to the same extent everywhere income in the anglo saxon countries remains particularly unequally distributed to shed new light on this puzzle the authors carry out a panel data analysis of eighteen oecd countries between 1970 and 2007 their analysis stands apart from the existing empirical literature by taking a comparative perspective the article examines the extent to which the relationship between the knowledge economy and income inequality is influenced by national labor market institutions the authors find that the expansion of knowledge employment is positively associated with both the 90 10 wage ratio and the income share of the top 1 percent but that these effects are mitigated by the presence of strong labor market institutions such as coordinated wage bargaining strict employment protection legislation high union density and high collective bargaining coverage the authors provide robust evidence against the argument that industrial relations systems are no longer important safeguards of wage solidarity in the knowledge economy

intergenerational economic mobility in the united states 1940 to 2000 we estimate trends in intergenerational economic mobility by matching men in the census to synthetic parents in the prior generation we find that mobility increased from 1950 to 1980 but has declined sharply since 1980 while our estimator places greater weight on location effects than the standard intergenerational coefficient the size of the bias appears to be small our preferred results suggest that earnings are regressing to the mean more slowly now than at any time since world war ii causing economic differences between families to become more persistent however current rates of positional mobility appear historically normal

consistent solutions in atomless economies we consider the problem of allocating a bundle of commodities among a group of agents who are collectively entitled to them we prove for an atomless economy with possibly satiated preferences any solution that is efficient equitable and consistent must select allocations that are supported by equal budget walrasian equilibria with slack we consider the problem of allocating a bundle of commodities among a group of agents who are collectively entitled to them we search for systematic methods or solutions of resolving this problem for a solution to be considered desirable we propose that it should satisfy several requirements first it should be efficient second it should be equitable a variety of distributional require ments have been proposed in the literature the requirement we will impose here is that it select allocations at which no agent would prefer the equal division of the social endowment to his own consumption in addition to these two basic efficiency and equity conditions we require that the solution be consistent the recommendations it makes for any economy are never contra dicted by the recommendations it makes for any reduced economy obtained by allowing some subgroup of agents to leave the scene with their allotted consumptions the requirement of consistency is very natural here is a motivation for it offered by thomson 1988 consider all the resources available on the planet earth one would like not only that they be distributed fairly when the planet is considered as a whole but also that whatever resources end up in each continent country city be fairly distributed among the members of that subpopulation when considered in isolation in this paper we study economies with a large number of agents modelled as a complete atomless measure space our main result is a characterization of the solutions that satisfy all three requirements of efficiency equity and con sistency it follows from our result that under standard assumptions on preferences any such solution must select allocations that are supported by equal income walrasian equilibria however our characterization holds for more general economies since it applies to economies in which preferences are possibly satiated mas colell 1988 extended traditional general equilibrium theory to the class of such economies by introducing the notion of walrasian

positive and normative judgments implicit in u s tax policy and the costs of unequal growth and recessions calculating the welfare implications of changes to economic policy or shocks requires economists to decide on a normative criterion one approach is to elicit the relevant moral criteria from real world policy choices converting a normative decision into a positive inference as in the recent surge of inverse optimum research we find that capitalizing on the potential of this approach is not as straightforward as we might hope we perform the inverse optimum inference on u s tax policy from 1979 through 2010 and argue that the results either undermine the normative relevance of the approach or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations

wages and human capital in the u s financial industry 1909 2006 we study the allocation and compensation of human capital in the u s finance industry over the past century across time space and subsectors we find that financial deregulation is associated with skill intensity job complexity and high wages for finance employees all three measures are high before 1935 and after 1980 but not in the interim period workers in the finance industry earn the same education adjusted wages as other workers until 1990 and significantly more afterward by 2006 the premium is 40 on average and 200 for top earners and ceos earnings risk and firm size effects account for some of the premium but the majority does not appear to be sustainable

inequality and debt in a model with heterogeneous agents we show that to account for the cross sectional divergence in debt to income ratios in us data a dsge model must assume a tax reallocation across the top and bottom income quantile of the population rather than differential productivity growth and low cost of access to financial intermediation

levels and trends in u s income and its distribution a crosswalk from market income towards a comprehensive haig simons income approach recent research on u s levels and trends in income inequality varies substantially based on how these studies measure income we crosswalk move between standards from a market income of tax units to a more comprehensive measure of income including realized capital gains of households using a unified data set and replicate common findings in the literature by using a comprehensive income definition in the spirit of haig simons considering yearly accrued capital gains rather than focusing on the delayed reporting of capital gains that appear in internal revenue service tax return data the observed growth in income inequality and top income shares since 1989 is dramatically reduced

are younger generations higher carbon emitters than their elders inequalities generations and co2 emissions in france and in the usa abstract proper understanding of the determinants of household co2 emissions is essential for a shift to sustainable lifestyles this paper explores the impacts of date of birth and income on household co2 emissions in france and in the usa direct co2 emissions of french and american households are computed from consumer budget surveys over the 1980 2000 time period age period cohort estimators are used to isolate the generational effect on co2 emissions i e the specific effect of date of birth independent of the age the year and other control variables the paper shows that french 1935 55 cohorts have a stronger tendency to emit co2 than their predecessors and followers the generational effect is explained by the fact that over their lifespan french baby boomers are better off than other generations and live in energy and carbon inefficient dwellings in the usa the absence of a generational effect on co2 emissions can be explained by the fact that intergenerational income inequalities are weaker than in france persistence of the generational effect once income and housing type is controlled for in france can be explained by the difficulty for french 1935 55 cohorts to adapt to sober energy consumption patterns

the great mortgaging housing finance crises and business cycles this paper unveils a new resource for macroeconomic research a long run dataset covering disaggregated bank credit for 17 advanced economies since 1870 the new data show that the share of mortgages on banks balance sheets doubled in the course of the twentieth century driven by a sharp rise of mortgage lending to households household debt to asset ratios have risen substantially in many countries financial stability risks have been increasingly linked to real estate lending booms which are typically followed by deeper recessions and slower recoveries housing finance has come to play a central role in the modern macroeconomy

capital is back wealth income ratios in rich countries 1700 2010 how do aggregate wealth to income ratios evolve in the long run and why we address this question using 1970 2010 national balance sheets recently compiled in the top eight developed economies for the united states united kingdom germany and france we are able to extend our analysis as far back as 1700 we find in every country a gradual rise of wealth income ratios in recent decades from about 200 300 in 1970 to 400 600 in 2010 in effect today s ratios appear to be returning to the high values observed in europe in the eighteenth and nineteenth centuries 600 700 this can be explained by a long run asset price recovery itself driven by changes in capital policies since the world wars and by the slowdown of productivity and population growth in line with the s g harrod domar solow formula that is for a given net saving

pareto models top incomes and recent trends in uk income inequality i determine uk income inequality levels and trends by combining inequality estimates from tax return data for the rich and household survey data for the non rich taking advantage of the better coverage of top incomes in tax return data which i demonstrate and creating income variables in the survey data with the same definitions as in the tax data to enhance comparability for top income recipients i estimate inequality and mean income by fitting pareto models to the tax data examining specification issues in depth notably whether to use pareto i or pareto ii generalized pareto models and the choice of income threshold above which the pareto models apply the preferred specification is a pareto ii model with a threshold set at the 99th or 95th percentile depending on year conclusions about aggregate uk inequality trends since the mid 1990s are robust to the way in which tax data are employed the gini coefficient for individual gross income rose by around 7 or 8 between 1996 7 and 2007 8 with most of the increase occurring after 2003 4 the corresponding estimate based wholly on the survey data is around 5

the income and tax share of very high income households 1960 1995 this paper presents new information on the fraction of adjusted gross income and of wages and salaries that is reported by taxpayers in the top one half of one percent of the income distribution this corresponds to roughly five hundred thousand households in the late 1990s this paper relies on data from the treasury s individual income tax model for the period 1960 1995 the definition of adjusted gross income is standardized so that changes in the tax law do not affect the measured concentration of agi the results suggest that the share of agi reported by the highest income households increased significantly between the early 1980s and the mid 1990s with most of the increase taking place in the years immediately following the tax reform act of 1986 while we find some evidence of transitory changes in the concentration of income around major tax changes which may be the result of income retiming by high income taxpayers re timing does not seem to explain most of the changes since 1986 this abstract was borrowed from another version of this item

top incomes in germany and switzerland over the twentieth century this paper presents new homogeneous series on top income shares in germany 1891 1998 and switzerland 1933 1995 using data from income tax returns the general pattern is consistent with recent results for france the secular decline in income inequality is for the most part an accidental capital income phenomenon very top incomes were badly hurt by the major shocks of the 1914 1945 period and never fully recovered afterwards since 1945 top income shares have been relatively stable with no rise during recent years unlike in the u s the striking episode before wwii is how nazi power brought top income shares to almost double within five years the striking result after wwii is that german top incomes are more concentrated within the top decile than in other industrialized countries thus the german super rich were richer than their american counterparts until the 1990s this puzzle is related to the much lower inheritance tax rates observed in germany since wwii jel n33 n34 h23 h24 h23 h24 h23 h24 h23 h24

on the long run evolution of inheritance france 1820 2050 this paper attempts to document and account for the long run evolution of inheritance we find that in a country like france the annual flow of inheritance was about 20 25 of national income between 1820 and 1910 down to less than 5 in 1950 and back up to about 15 by 2010 a simple theoretical model of wealth accumulation growth and inheritance can fully account for the observed u shaped pattern and levels using this model we find that under plausible assumptions the annual bequest flow might reach about 20 25 of national income by 2050 this corresponds to a capitalized bequest share in total wealth accumulation well above 100 our findings illustrate the fact that when the growth rate g is small and when the rate of return to private wealth r is permanently and substantially larger than the growth rate say r 4 5 vs g 1 2 which was the case in the 19th century and early 20th century and is likely to happen again in the 21st century then past wealth and inheritance are bound to play a key role for aggregate wealth accumulation and the structure of lifetime inequality contrarily to a widely spread view modern economic growth did not kill inheritance

social class and income inequality in the united states ownership authority and personal income distribution from 1980 to 2010 this study outlines a theory of social class based on workplace ownership and authority relations and it investigates the link between social class and growth in personal income inequality since the 1980s inequality trends are governed by changes in between class income differences changes in the relative size of different classes and changes in within class income dispersion data from the general social survey are used to investigate each of these changes in turn and to evaluate their impact on growth in inequality at the population level results indicate that between class income differences grew by about 60 since the 1980s and that the relative size of different classes remained fairly stable a formal decomposition analysis indicates that changes in the relative size of different social classes had a small dampening effect and that growth in between class income differences had a large inflationary effect on trends in personal income inequality

analysts reactions to warnings of negative earnings surprises both the popular press and research literature report increasing use of short horizon earnings guidance referred to hereafter as warnings primarily before negative earnings surprises 1 while it is claimed that investors and analysts have little tolerance for disappointments feel misled by the failure to warn lose confidence in management and vote with their feet by selling off their shares in companies which do not warn kasznik and lev 1995 reported findings suggesting the opposite specifically they found that controlling for the magnitude of the negative earnings surprise firms that warn tend to experience more negative stock price reactions and more negative analyst earnings forecast revisions than those providing no warning in this paper we investigate analysts reactions to qualitative warnings of adverse earnings and attempt to reconcile analysts more negative forecast revisions as documented by kasznik and lev 1995 and the apparently conflicting anecdotal evidence that suggests more positive responses

population technology and fragmentation the european miracle revisited abstract the effects of political fragmentation on long run development seem to have changed over the course of human history technological leaders used to be empires but the industrial revolution started in the fragmented europe this paper sets up a model to help us think about this puzzle there are two sets of mechanisms at play a standard scale effect which benefits unified regions since technology is a non rivalrous good and several competition effects both negative like wasteful armies and positive incentives to invest in new technologies we apply the model to analyze the preindustrial divergence between china and europe

technology driven inequality leads to poverty and resource depletion the rapid rise in inequality is often seen to go in hand with resource overuse examples include water extraction in pakistan land degradation in bangladesh forest harvesting in sub saharan africa and industrial fishing in lake victoria while access to ecosystem services provided by common pool resources mitigates poverty exclusive access to technology by wealthy individuals may fuel excessive resource extraction and deplete the resource thus widening the wealth gap we use a stylised social ecological model to illustrate how a positive feedback between wealth and technology may fuel local inequality the resulting rise in local inequality can lead to resource degradation and critical transitions such as ecological resource collapse and unexpected increase in poverty further we find that societies may evolve towards a stable state of few wealthy and many poor individuals where the distribution of wealth depends on how access to technology is distributed overall our results illustrate how access to technology may be a mechanism that fuels resource degradation and consequently pushes most vulnerable members of society into a poverty trap

entrepreneurial finance and innovation an introduction and agenda for future research the increasingly large role played by financial intermediaries such as venture capitalists and angels in nurturing entrepreneurial firms and in promoting product market innovation has led to great research interest in the area of entrepreneurial finance and innovation this paper introduces the special issue of the review of financial studies dedicated to entrepreneurial finance and innovation and highlights some of the promising topics for future research in this area the special issue combines papers presented at the june 2010 entrepreneurial finance and innovation efic conference which was jointly sponsored by the kauffman foundation and the review of financial studies with other related papers

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

a theory of optimal inheritance taxation this paper derives optimal inheritance tax formulas that a capture the key equityeciency trade o b are expressed in terms of estimable sucient statistics c are robust to the underlying structure of preferences we consider dynamic stochastic models with general and heterogeneous bequest tastes and labor productivities we limit ourselves to simple but realistic linear or two bracket tax structures to obtain tractable formulas we show that long run optimal inheritance tax rates can always be expressed in terms of distributional parameters aggregate behavioral elasticities and social preferences for redistribution importantly those results carry over with tractable modications to a the case with social discounting instead of steady state welfare maximization b the case with partly accidental bequests c the standard barro becker dynastic model in all cases the optimal inheritance tax rate increases with the concentration of bequest received and decreases with the elasticity of aggregate bequests to the net of tax rate the optimal tax rate is positive and quantitatively large if concentration is high the elasticity is low and society cares mostly about those receiving little inheritance in contrast the optimal tax rate is negative when society cares mostly about inheritors we propose a calibration using micro data for france and the united states we nd that for realistic parameters

labor supply in the past present and future a balanced growth perspective the absence of a trend in hours worked in the postwar united states is an exception across countries and historically hours fall steadily by a little below 0 5 per year are steadily falling hou

the return of patrimonial capitalism a review of thomas piketty s capital in the twenty first century capital in the twenty first century by thomas piketty provides a unified theory of the functioning of the capitalist economy by linking theories of economic growth and functional and personal income distributions it argues based on the long run historical data series that the forces of economic divergence including rising income inequality tend to dominate in capitalism it regards the twentieth century as an exception to this rule and proposes policies that would make capitalism sustainable in the twenty first century jel d31 d33 e25 n10 n30 p16

inequality and its discontents inequality in the distribution of income and wealth has come to the fore as a core concern across the industrialized world here we examine what has happened to income inequality across the rich countries in recent decades we discuss the range of factors that appear to be driving inequality upwards notably the role of technological change globalization and national institutions and policies we look at how rising inequality might undermine economic growth and squeeze the middle and assess the extent to which it has actually done so we assess whether rising inequality is associated with worsening outcomes and inequalities across various social domains finally we review emerging evidence on the role that rising inequality may be playing in the revolt of the angry and rise of populism

a theory of intergenerational mobility we study the link between market forces cross sectional inequality and intergenerational mobility emphasizing complementarities in the production of human capital we show that wealthy parents i

pareto and piketty the macroeconomics of top income and wealth inequality abstract since the early 2000s research by thomas piketty emmanuel saez and their coauthors has revolutionized our understanding of income and wealth inequality in this paper i highlight some of the key empirical facts from this research and comment on how they relate to macroeconomics and to economic theory more generally one of the key links between data and theory is the pareto distribution the paper describes simple mechanisms that give rise to pareto distributions for income and wealth and considers the economic forces that influence top inequality over time and across countries for example it is in this context that the role of the famous r g expression is best understood

the top 1 percent in international and historical perspective world top incomes database at http topincomes parisschoolofeconomics eu and has represented a challenge to the economics profession stories based on the and has represented a challenge to the economics profession stories based on the supply and demand for skills are not enough to explain the extreme top tail of supply and demand for skills are not enough to explain the extreme top tail of the earnings distribution nor is it enough to look only at earned incomes different the earnings distribution nor is it enough to look only at earned incomes different approaches are necessary to explain what has happened in the united states over approaches are necessary to explain what has happened in the united states over the past century and also to explain the differing experience in other high income the past century and also to explain the differing experience in other high income countries over recent decades we begin with the international comparison in the countries over recent decades we begin with the international comparison in the fi rst section and then turn to the causes and implications of the evolution of top fi rst section and then turn to the causes and implications of the evolution of top income shares income shares

english proficiency and labor market performance evidence from the economics profession this article investigates whether the global spread of the english language provides an inherent advantage to native english speakers this question is studied within the context of the economics profession where the impact of being a native english speaker on future publishing success is examined english speakers may have an advantage because they are writing in their native language the quality of writing is a crucial determinant of publishing success and all the top economics journals are published in english using a ranking of the world s top 2 5 of economists this article confirms that native english speakers are ranked 100 spots higher better than similar non native english speakers a variety of extensions examine and dispel many other potential explanations jel a11 j44 f66

private value allocations in large economies with differential information abstract we consider a radner type e g radner 1968 econometrica 36 31 58 pure exchange economy with differential information and a continuum of agents we show that under appropriate assumptions the set of aumann shapley private value allocations in such an economy coincides with the set of radner competitive equilibrium allocations journal of economic literature classification numbers c71 d51 d82

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

income inequality the consequences of skill upgrading when firms have hierarchical organizational structures during the last three decades most developed countries have experienced increasing income inequality using danish register data from 1992 to 2007 for all private sector employees we confirm that income inequality has increased in denmark we also observe an increase in the relative employment of highly educated individuals as well as differential income growth rates across employee subgroups where in particular managers experienced significant real income progression we use an equilibrium search framework with on the job search to derive the income distribution in this model we can determine the management and education premia we can also show that when our model is exposed to skill upgrading it is capable of producing income dynamics similar to those observed in the danish income distribution jel j3 j6 m5

political self serving bias and redistribution we explore the impact of the self serving bias on the supply and demand for redistribution we present results from an experiment in which participants decide on redistribution after performing a real effort task dependent on individual performance participants are divided into two groups successful and unsuccessful participants success is exogenously determined because they are randomly assigned to either a hard or easy task however because participants are not told which task they were assigned to there is ambiguity as to whether success or failure should be attributed to internal or external factors participants take two redistribution decisions first they choose a supply of redistribution in a situation where no personal interests are at stake second they choose a redistributive system behind a veil of ignorance our results confirm and expand previous findings on the self serving bias successful participants are more likely to attribute their success to their effort rather than luck and they opt for less redistribution unsuccessful participants tend to attribute their failure to external factors and opt for more redistribution we demonstrate that the self serving bias contributes to a polarization of the views on redistribution

top incomes in the long run of history a recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics top incomes represent a small share of the population but a very significant share of total income and total taxes paid hence aggregate economic growth per capita and gini inequality indexes are sensitive to excluding or including top incomes we discuss the estimation methods and issues that arise when constructing top income share series including income definition and comparability over time and across countries tax avoidance and tax evasion we provide a summary of the key empirical findings most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks top income shares do not recover in the immediate postwar decades however over the last thirty years top income shares have increased substantially in english speaking countries and in india and china but not in continental european countries or japan this increase is due in part to an unprecedented surge in top wage incomes as a result wage income comprises a larger fraction of top incomes than in the past finally we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open

the asymptotic nucleolus of large monopolistic market games abstract we study the asymptotic nucleolus of differentiable monopolistic market games in continuum economies with a finite number of traders types and show that under appropriate assumptions it is the center of symmetry of the subset of the core in which all the monopolists receive the same payoff thus the nucleolus discriminates the traders in the atomless sector whereas the competitive equilibrium does not moreover if there is a single syndicated atom and a finite number of atomless sectors the syndicate is treated more favorably under the asymptotic nucleolus than under the shapley value associated with the pure monopolistic market journal of economic literature classification numbers c71 d40

growth is really good for the really rich this paper analyzes the relationship between mean income and the income of the rich our methodology closely follows that of dollar and kraay 2002 but instead of looking at the bottom of the distribution we analyze the top we use panel data from the world top incomes database which collects top income data from several countries using tax returns as the raw source we define the rich as earners in the top 10 percent 1 percent 0 1 percent and 0 01 percent of the income distribution we find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population however we also find that the income of earners in the top percentile of the distribution and above grows in an even larger proportion than average income that is economic growth is really good for the really rich we also find that during economic downturns the average income of top earners responds proportionally less to changes in mean income than during economic expansions our results are robust to different sample specifications

buying beauty on prices and returns in the art market this paper investigates the price determinants and investment performance of art we apply a hedonic regression analysis to a new data set of more than one million auction transactions of paintings and works on paper based on the resulting price index we conclude that art has appreciated in value by a moderate 3 97 per year in real u s dollar terms between 1957 and 2007 this is a performance similar to that of corporate bonds at much higher risk a repeat sales regression on a subset of the data demonstrates the robustness of our index next quantile regressions document larger average price appreciations and higher volatilities in more expensive price brackets we also find variation in historical returns across mediums and movements finally we show that measures of high income consumer confidence and art market sentiment predict art price trends this paper was accepted by wei xiong finance

top income measurement and undistributed profits abstract we develop a method that allows transforming retained business profits in a particular year into business accrued capital gains of the same year these capital gains thus estimated can be simply added to other sources of personal income of top earners to obtain a consistent measure of their total income

the drivers of income inequality in rich countries rising income inequality has recently come centre stage as a core societal concern for rich countries the diagnosis of the forces driving inequality upwards and their relative importance remains hotly contested notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices this survey provides a critical review and synthesis of recent research the focus is on income inequality across the entire distribution rather than only on what has been happening at the very top we pay particular attention to including what has been learned from the analysis of micro data to ensuring that the coverage is not unduly us centric and to analyses of the interrelations between the different drivers of inequality the marked differences in inequality trends across countries and time periods reflect how global economic forces such as globalisation and technological change have interacted with differing national contexts and institutions major analytical challenges stand in the way of a consensus emerging on the relative importance of different drivers in how income inequality has evolved in recent decades

the mirrlees review and the state of public economics the mirrlees review of taxation in the united kingdom is a landmark in the analysis of u k fiscal policy and of wide interest to public finance economists around the world this review concentrates on what we can learn from the review about the current state of public economics and directions for future research jel e62 h20 h50

what happens when you tax the rich evidence from executive compensation this paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995 the data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income indeed this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period one person alone can account for more than 2 percent the decline however is almost entirely a short run shift in the timing of compensation rather than a permanent reduction in taxable income the short run elasticity of taxable income with respect to the net of tax share exceeds one in this sample but the elasticity after one year is at most 0 4 and probably closer to zero breaking out the tax responsiveness of different types of compensation shows that the large short run responses come almost entirely from a large inc

the elasticity of taxable income during the 1990s new estimates and sensitivity analyses author affiliation seth h giertz sgiertz2 unl edu acknowledgment the author wishes to thank david weiner ed harris bob dennis doug hamilton tom woodward emmanuel saez chris bollinger and three anonymous referees for their comments and assistance 1 introductioneconomists have long recognized that taxation creates economic inefficiency by distorting relative prices often between leisure and all other goods in the economy even a broad based income tax can have substantial efficiency costs so long as leisure remains untaxed harberger 1964 uses this as motivation for comparing the efficiency implications of direct versus indirect taxation in so doing he shows how labor supply elasticities can be used to measure the efficiency implications of income taxation 1 harberger s analysis had a profound influence on public and labor economists spurring increased research into labor supply elasticities which were seen as proxies for the efficiency costs from taxation more than two decades after harberger economists began to emphasize the variety of other margins over which taxes can distort behavior in addition to hours worked these economists noted that these other behavioral responses may too have important implications for efficiency an important building block in the evolution of this literature was set forth by slemrod 1990 who presented a hierarchy of behavioral responses to taxation slemrod divided behavior into three categories based on their responsiveness to taxes his least responsive category real responses includes individuals changing consumption and work patterns and businesses altering investment and production decisions second in order of responsiveness is circumvention which includes both illegally evasion and legally avoidance bypassing the tax system 2 in the case of evasion income is concealed from tax authorities or factors that offset tax liabilities such as expenses and deductions are inflated beyond what is legally permitted in the case of avoidance income is shifted in order to receive more favorable tax treatment diverting income into a tax deferred retirement account is an example of avoidance 3 included in circumvention is the expenditure of time and money necessary to avoid or evade taxation third on the hierarchy and the most responsive is the timing of income receipt which includes pulling the receipt of income into the previous year or pushing it into the next in order to take advantage of more favorable tax treatment while not altering real behavior 4 slemrod further recognizes that the type of behavioral response could have implications for both tax revenue and tax incidence and in some cases efficiency predating slemrod s insights lindsey 1987 produced elasticity estimates for taxable income although what lindsey termed taxable income more closely approximates adjusted gross income agi instead of labor supply 5 lindsey s estimated elasticities were much larger than the labor supply literature would have suggested lindsey emphasized the revenue implications of the elasticity of taxable income eti but not its efficiency implications building on slemrod and lindsey feldstein 1995 produced eti estimates but went much further than lindsey in describing the behaviors that could affect taxable income he argued that many of these behaviors were not captured by labor supply elasticities furthermore feldstein posited that income taxation creates economic inefficiency not only by distorting the relative price between labor and leisure but more broadly by distorting the relative price between goods or activities that are taxed and those that are not taxed since leisure is not the only untaxed activity for example in response to taxes not only work hours but also work effort might change

performance pay and wage inequality an increasing fraction of jobs in the u s labor market explicitly pay workers for their performance using bonus pay commissions or piece rate contracts using data from the panel study of income dynamics we show that compensation in performance pay jobs is more closely tied to both observed and unobserved productive characteristics of workers than compensation in non performance pay jobs we also find that the return to these productive characteristics increased faster over time in performance pay than in non performance pay jobs we show that this finding is consistent with the view that underlying changes in returns to skill due for instance to technological change induce more firms to offer performance pay contracts and result in more wage inequality among workers who are paid for performance thus performance pay provides a channel through which underlying changes in returns to skill get translated into higher wage inequality we conclude that this channel accounts for 21 of the growth in the variance of male wages between the late 1970s and the early 1990s and for most of the increase in wage inequality above the eightieth percentile over the same period

taxation income redistribution and debt dynamics in a seven equation model of the business cycle abstract in this paper we investigate the economic dynamics of a seven equation model of the business cycle the main distinctive features of the model are related to a the role played by the public sector in redeploying income between workers and capitalists since it is assumed that the bargaining power of the two classes affects tax rates and transfers levied upon them b the influence that past events have on the agents current behavior with particular regard to consumption patterns c the specification of firms investment function which incorporate keynesian and harrodian elements by assuming that investments are a function of both the difference between interest and profit rate and the discrepancy between actual and desired capital to output ratio since all these assumptions imply possible balance sheets disequilibrium particular regard is dedicated to the analysis of macroagents debt dynamics special emphasis is placed on the analysis of the destabilization of equilibria via hopf bifurcations which leads to the emergence of an interesting and rich cyclical dynamics

investor sophistication and capital income inequality abstract capital income inequality is large and growing fast accounting for a significant portion of total income inequality we study its growth in a general equilibrium portfolio choice model with endogenous information acquisition and heterogeneity across household sophistication and asset riskiness the model implies capital income inequality that grows with aggregate information technology investors differentially adjust both the size and the composition of their portfolios as unsophisticated investors retrench from trading risky securities and shift their portfolios to safer assets technological progress also reduces aggregate returns and increases the volume of transactions features that are consistent with recent u s data

the determinants of income inequality in oecd countries the objective of this paper is to identify the determinants of the increase in income inequality that oecd countries have experienced over the past two decades my hypothesis is that along with the financialisation of economies that has taken place since 1990 inequality increased because labour flexibility intensified labour market institutions weakened as trade unions lost power and public social spending started to retrench and did not compensate for the vulnerabilities created by the globalisation process using data from 25 high income oecd countries from 1990 to 2013 i empirically evaluate this hypothesis my results clearly suggest that the increase in inequality over the past two decades is caused by an increase in financialisation a deepening of labour flexibility the weakening of trade unions and the retrenchment of the welfare state

motivation and markets many workers receive pay based on subjectively assessed performance yet the shirking model of efficiency wages excludes it this paper incorporates such pay with the following results performance pay is more efficient than efficiency wages when the costs of having a job vacant are low and qualified workers in short supply more capital intensive industries pay more than less capital intensive industries as observed in studies of interindustry wages differentials sustaining an efficient outcome requires a social convention similar to the notion of a fair wage the model also makes predictions about the relationship between turnover wages growth and unemployment copyright 1998 by american economic association

the long run history of income inequality in denmark we use historical publications and micro data from the tax returns to construct internationally comparable estimates of the development in income inequality in denmark over the last 140 years the study shows that income inequality and top income shares have declined during several distinct phases in between periods of stability furthermore the quality of the danish data allows us to analyse not only the development in top income shares but also broader inequality measures such as the gini coefficient these analyses show that top income shares are a good proxy for the overall level of inequality

the case for a progressive tax from basic research to policy recommendations the fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking a large academic literature has developed models of optimal tax making a large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity in this theory to cast light on the problem of optimal tax progressivity in this paper we explore the path from basic research results in optimal tax theory to paper we explore the path from basic research results in optimal tax theory to formulating policy recommendations formulating policy recommendations models in optimal tax theory typically posit that the tax system should maximize a models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint taking into account social welfare function subject to a government budget constraint taking into account that individuals respond to taxes and transfers social welfare is larger when resources that individuals respond to taxes and transfers social welfare is larger when resources are more equally distributed but redistributive taxes and transfers can negatively are more equally distributed but redistributive taxes and transfers can negatively affect incentives to work save and earn income in the fi rst place this creates the clasaffect incentives to work save and earn income in the fi rst place this creates the classical trade off between equity and effi ciency which is at the core of the optimal income sical trade off between equity and effi ciency which is at the core of the optimal income tax problem in general optimal tax analyses maximize social welfare as a function of tax problem in general optimal tax analyses maximize social welfare as a function of individual utilities the sum of utilities in the utilitarian case the marginal weight for individual utilities the sum of utilities in the utilitarian case the marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds such welfare weights depend on of consumption expressed in terms of public funds such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income therefore optimal income tax theory is fi rst a normative more equality of income therefore optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c

income inequality and asset prices under redistributive taxation abstract our simple model features agents heterogeneous in skill and risk aversion incomplete financial markets and redistributive taxation in equilibrium agents become entrepreneurs if their skill is sufficiently high or risk aversion sufficiently low under heavier taxation entrepreneurs are more skilled and less risk averse on average through these selection effects the tax rate is positively related to aggregate productivity and negatively related to the equity risk premium both income inequality and stock prices initially increase but eventually decrease with the tax rate investment risk stock market participation and skill heterogeneity all contribute to inequality cross country empirical evidence supports the model s predictions

taxation and top incomes in canada we estimate the elasticity of reported income with respect to tax rates for high earners using sub national variation across canadian provinces we argue this allows for better identification of tax elasticities than the existing literature we find that elasticities of reported income at the provincial level are large for incomes in the top 1 but small for lower earners there are strong indications that the response happens both through earned and capital income while our estimated elasticities are large changes in tax rates cannot explain much of the overall long run trend of higher income concentration in canada resume fiscalite et revenus les plus eleves au canada les auteurs evaluent l elasticite du revenu declare par rapport aux taux d imposition pour les revenus les plus eleves en utilisant les variations intra nationales a travers les provinces du canada ils suggerent que cela produit une meilleure identification des elasticites que ce que contient la litterature pour le moment on decouvre que les elasticites du revenu declare sont elevees pour les 1 au sommet mais faibles pour les revenus plus bas il appert fortement que la reponse se produit tant pour les revenus gagnes que pour les revenus d investissement meme si les elasticites mesurees sont elevees les changements dans les taux d imposition ne peuvent pas expliquer beaucoup de la tendance a long terme vers une plus forte concentration des hauts revenus au canada

firm heterogeneity in capital labour ratios and wage inequality author s leonardi marco abstract this paper documents the increasing dispersion of capital labor ratios across firms in the us and provides some empirical evidence of a positive correlation at the two digit industry level between the dispersion of capital labor ratios across firms and residual wage inequality to explain this empirical fact the paper adopts a search model where firms differ in their optimal capital investment the exogenous decline in the relative price of equipment capital makes the distributions of capital labor ratios more dispersed in a frictional labor market this force generates wage dispersion among identical workers ols estimates of the relationship between capital dispersion and the relative price of equipment capital support the main hypothesis of the model

buchanan economics and politics author affiliation paul h rubin samuel candler dobbs professor of economics emory university department of economics 312e rich building 1602 fishburne drive atlanta ga 30322 2240 usa e mail prubin emory edu1 introductionmy work has been greatly influenced by jim buchanan much of my early work was in public choice see e g kau and rubin 1979 2002 of course this field would not exist without the calculus of consent buchanan and tullock 1962 more recently my research has gone in different directions but it still bears jim s influence i take as my text today a statement from jim buchanan s great presidential address to the southern economic association in 1963 economics is the study of the whole system of exchange relationships politics is the study of the whole system of coercive or potentially coercive relationships buchanan 1964 p 220 i agree with this statement but in this tribute i want to extend this analysis a little bit i want to point out some additional differences between thinking about economics and thinking about politics some of this analysis is based on my work on the biology of politics rubin 2002 2003 based on that work i have come to the conclusion that in some sense political thinking is more basic to our minds than is economic thinking that is when faced with an interpersonal issue that does not involve family or sex an individual untrained in economics is more likely to treat it as a political issue than as an economic issue indeed one of our tasks as economists is or should be to educate our students and the public about the distinction between economics and politics pinker 2003 not an economist argues that economics is one area where human intuitions are lacking and that it is important to teach economics for this reason 2 characteristics of political versus economic thinkinghere are some of the relevant characteristics of political thinking as contrasted with economic thinking i politics is about competition for resources while economics is about cooperation to generate surpluses ii political thinking tends to be zero sum division of a fixed pie economics allows for positive sum interactions iii politics is an us versus them conflict we are a tribal species with tribal competition economics is universal trade with anyone is beneficial iv perhaps because of its us versus them nature politics is dichotomous win or lose good or bad economics is continuous more or less how much v political processes are controlled by specific active agents the chief the king the general these agents may be heroes or villains but they are purposeful agents economics deals with processes as the market process or the invisible hand vi politics focuses on motives economics focuses on net outputs i now discuss each of these issues in turn competitionthe most important error in economic thinking is associated with one of the most fundamental concepts of economics competition as buchanan argues in his address the fundamental unit of economics is the transaction and transactions are cooperative competition is important but it is a tool to improve cooperation buchanan among others points out that in the purely competitive model there is no competition but we do not fully understand or analyze the implications even in nonperfectly competitive environments the degree of competition is overestimated firms in this environment do compete with each other but they are competing for the right to cooperate with consumers and suppliers including workers a monopolist is a firm with an exclusive ability or right to cooperate with consumers in some market we focus on competition rather than cooperation because of our political bias toward looking at markets through the lens of politics competition is between firms which are actively striving to accomplish some goal

distributional national accounts methods and estimates for the united states this article combines tax survey and national accounts data to estimate the distribution of national income in the united states since 1913 our distributional national accounts capture 100 of national income allowing us to compute growth rates for each quantile of the income distribution consistent with macroeconomic growth we estimate the distribution of both pretax and posttax income making it possible to provide a comprehensive view of how government redistribution affects inequality average pretax real national income per adult has increased 60 from 1980 to 2014 but we find that it has stagnated for the bottom 50 of the distribution at about 16 000 a year the pretax income of the middle class adults between the median and the 90th percentile has grown 40 since 1980 faster than what tax and survey data suggest due in particular to the rise of tax exempt fringe benefits income has boomed at the top the upsurge of top incomes was first a labor income phenomenon but has mostly been a capital income phenomenon since 2000 the government has offset only a small fraction of the increase in inequality the reduction of the gender gap in earnings has mitigated the increase in inequality among adults but the share of women falls steeply as one moves up the labor income distribution and is only 11 in the top 0 1 in 2014

rising earnings inequality in sweden the role of composition and prices the rise in cross sectional earnings inequality in sweden between 1990 and 2002 is decomposed into changes in market prices of observable characteristics changes in the composition of the labor force across demographic groups and industries and changes in unobservables the swedish experience is then compared with that in the united states in both countries the rise in earnings inequality is a consequence of rising upper tail dispersion contrary to the u s experience where the rise is largely driven by changing market prices of observables and increased residual dispersion shifts in the swedish labor force composition have contributed positively to the rise in the p90 p50 gap the rise in the swedish p99 p90 gap however is entirely accounted for by changes in prices and residual dispersion

analysts reactions to earnings preannouncement strategies preannouncements of earnings tend to overstate negative or understate positive news which decreases the chance of a negative surprise when actual earnings is announced we conduct an experiment to investigate how experienced sell side analysts earnings forecasts are affected by preannouncements that either understate accurately state or overstate the magnitude of positive or negative total earnings news holding total earnings news constant we find that firms with negative positive total news receive the highest post earnings announcement forecasts of future earnings when the earlier preannouncement overstates understates the magnitude of the news these forecasts are consistent with the analysts perceptions about the firms future prospects but not their perceptions of management while analysts expect preannouncements to be lower than actual earnings they do not adjust their forecasts for these beliefs these insights into analysts responses have implications both for managers and analysts

does tax policy affect executive compensation evidence from postwar tax reforms abstract the trends in executive pay and labor income tax rates since the 1940s suggest a high elasticity of taxable income with respect to tax policy by contrast the level and structure of executive compensation have been largely unresponsive to tax incentives since the 1980s however the relative tax advantage of different forms of pay was small during this period using a sample of top executives in large firms from 1946 to 2005 we also find a small short run response of salaries qualified stock options and bonuses paid after retirement to changes in tax rates on labor income even though tax rates were significantly higher and more heterogeneous across individuals in the first several decades following wwii we explore several potential explanations for the conflicting impressions given by the long run and short run correlations between taxes and pay including changes in social norms and concerns about pay equality

inequality is bad for growth of the poor but not for that of the rich the paper assesses the impact of overall inequality as well as inequality among the poor and among the rich on the growth rates along various percentiles of the income distribution the analysis uses micro census data from u s states covering the period from 1960 to 2010 the paper finds evidence that high levels of inequality reduce the income growth of the poor and if anything help the growth of the rich when inequality is deconstructed into bottom and top inequality the analysis finds that it is mostly top inequality that is holding back growth at the bottom

the structure of inequality and the politics of redistribution against the current consensus among comparative political economists we argue that inequality matters for redistributive politics in advanced capitalist societies but it is the structure of inequality not the level of inequality that matters our theory posits that middle income voters will be inclined to ally with low income voters and support redistributive policies when the distance between the middle and the poor is small relative to the distance between the middle and the rich we test this proposition with data from 15 to 18 advanced democracies and find that both redistribution and nonelderly social spending increase as the dispersion of earnings in the upper half of the distribution increases relative to the dispersion of earnings in the lower half of the distribution in addition we present survey evidence on preferences for redistribution among middle income voters that is consistent with our theory and regression results indicating that the left parties are more likely to participate in government when the structure of inequality is characterized by skew

the debt tax shield in general equilibrium abstract we study the general equilibrium effects of the corporate debt tax shield in an endowment economy with a redistributive tax system that taxes firm profits and household income and redistributes tax revenues in an attempt to harmonize households lifetime consumption opportunities in general equilibrium the debt tax shield not only affects corporate capital structure and valuation but also causes poorer households to consume more and save less at a younger age without the debt tax shield the same welfare improvements for poorer households are achievable with significantly lower tax rates

migration and wage effects of taxing top earners evidence from the foreigners tax scheme in denmark this paper analyzes the eects of income taxation on the international migration and earnings of top earners using a danish preferential foreigner tax scheme and populationwide danish administrative data this scheme introduced in 1991 allows new immigrants with high earnings to be taxed at a preferential at rate for a duration of three years we obtain two main results first the scheme has doubled the number of highly paid foreigners in denmark relative to slightly less paid and therefore ineligible foreigners this translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners between 1 5 and 2 second we nd compelling evidence of a negative eect of the scheme induced reduction in the average tax rate on pre tax earnings of foreign migrants at the individual level this nding can be rationalized by a matching frictions

deconstructing income and income inequality measures a crosswalk from market income to comprehensive income recent research on levels and trends in the united states in income inequality vary substantially in how they measure income we show the sensitivity of alternative income measures in capturing income trends using a unified data set focusing solely on market income or including realized taxable capital gains based on irs tax return data in more comprehensive household income measures will dramatically increase inequality growth compared to capital gains measures more in keeping with haig simons principles using a measure of yearly accrued capital gains dramatically reduces observed growth in income inequality across the distribution but also equalizes income growth since 1989