Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities

@article{Piketty2011OptimalTO,
  title={Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities},
  author={T. Piketty and E. Saez and S. Stantcheva},
  journal={NBER Working Paper Series},
  year={2011}
}
This paper presents a model of optimal labor income taxation where top incomes respond to marginal tax rates through three channels: (1) standard labor supply, (2) tax avoidance, (3) compensation bargaining. We derive the optimal top tax rate formula as a function of the three corresponding behavioral elasticities. The first elasticity (labor supply) is the sole real factor limiting optimal top tax rates. The optimal tax system should be designed to minimize the second elasticity (avoidance… Expand
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