TY - JOUR
T1 - Marginal Tax Rates and Income in the Long Run
T2 - Evidence from a Structural Estimation
AU - Macnamara, Patrick
AU - Pidkuyko, Myroslav
AU - Rossi, Raffaele
PY - 2023/9/9
Y1 - 2023/9/9
N2 - We estimate a life-cycle model of savings, labor productivity and entrepreneurs to measure the long-run response of income to marginal tax rate cuts in the US. Long-run tax elasticities of income are largest for the richest 1% but are also positive and substantial for other income groups. In equilibrium, entrepreneurs obtain higher returns on wealth. This increases the investment response of rich, high-return entrepreneurs, amplifying their income elasticity to tax cuts. This leads to a reallocation of capital which increases TFP, and generates a boost in wages that magnifies the estimated income response of the bottom 90% as well.
AB - We estimate a life-cycle model of savings, labor productivity and entrepreneurs to measure the long-run response of income to marginal tax rate cuts in the US. Long-run tax elasticities of income are largest for the richest 1% but are also positive and substantial for other income groups. In equilibrium, entrepreneurs obtain higher returns on wealth. This increases the investment response of rich, high-return entrepreneurs, amplifying their income elasticity to tax cuts. This leads to a reallocation of capital which increases TFP, and generates a boost in wages that magnifies the estimated income response of the bottom 90% as well.
KW - Elasticity of taxable income
KW - Entrepreneurs
KW - Life-cycle
KW - Marginal tax rate changes
KW - Structural estimation
UR - http://www.scopus.com/inward/record.url?scp=85171673750&partnerID=8YFLogxK
UR - https://www.mendeley.com/catalogue/4e7610c1-ce41-3cc5-b9f0-956a0112d3d2/
U2 - 10.1016/j.jmoneco.2023.09.001
DO - 10.1016/j.jmoneco.2023.09.001
M3 - Article
SN - 0304-3932
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
ER -