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Title: Taxing Atlas: Using Firm Data to Derive Optimal Income Tax Rates

Citation Type: Miscellaneous

Publication Year: 2014

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Abstract: This paper studies the optimal taxation of top labor incomes. Top income earners are modeled as managers who operate a span-of-control technology la Rosen (1982). Managers are heterogenous in their skill level. Effort and skill of the manager are privately observed. Managerial skills increase managers productivity of both effort and supervision, creating a scale-of-operations effect. A tax formula for optimal taxes is derived linking optimal marginal tax rates to preferences and firm technology. We show that a larger scale-of-operations effect prescribes lower tax rates. The model is calibrated using US firm level data. Our quantitative results suggest that optimal top tax rates are in line with the current US tax code.

Url: http://www.andrew.cmu.edu/user/ales/abw-taxingatlas.pdf

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Authors: Ales, Laurence; Bellofatto, A. Andres; Wang, Jessie J.

Publisher: Tepper School of Business, Carnegie Mellon Univeristy

Data Collections: IPUMS CPS

Topics: Methodology and Data Collection, Other

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