Marginal Tax Rates and Income in the Long Run: Evidence from a Structural Estimation

Patrick Macnamara, Myroslav Pidkuyko, Raffaele Rossi

Research output: Contribution to journalArticlepeer-review


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.
Original languageEnglish
JournalJournal of Monetary Economics
Early online date9 Sept 2023
Publication statusE-pub ahead of print - 9 Sept 2023


  • Elasticity of taxable income
  • Entrepreneurs
  • Life-cycle
  • Marginal tax rate changes
  • Structural estimation


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