2014/01/29 by Thomas Piketty, Emmanuel Saez, Stefanie Stantcheva · 712 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Compensation (psychology) #Corporate Taxation and Avoidance #Economics #Fiscal Policy and Economic Growth #Income tax #Labour economics #Luck #Monetary economics #Public economics #Tax rate #Taxation and Compliance Studies
paper · open access · doi:10.1257/pol.6.1.230
published in American Economic Journal Economic Policy 6(1), 230-271 (American Economic Association)
openalex publication_date 2014/01/29 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/23
This paper derives optimal top tax rate formulas in a model where top earners respond to taxes through three channels: labor supply, tax avoidance, and compensation bargaining. The optimal top tax rate increases when there are zero-sum compensation-bargaining effects. We present empirical evidence consistent with bargaining effects. Top tax rate cuts are associated with top one percent pretax income shares increases but not higher economic growth. US CEO “pay for luck” is quantitatively more prevalent when top tax rates are low. International CEO pay levels are negatively correlated with top tax rates, even controlling for firms' characteristics and performance. (JEL D31, H21, H24, H26, M12)