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={Thomas Piketty and Emmanuel Saez and Stefanie Stantcheva},
  journal={NBER Working Paper Series},
  year={2011}
}
This paper analyzes the problem of optimal taxation of top labour incomes. We develop a model where top incomes respond to marginal tax rates through three channels: (1) the standard supply-side channel through reduced economic activity, (2) the tax avoidance channel, (3) the compensation bargaining channel through efforts in influencing own pay setting. We derive the optimal top tax rate formula as a function of the three elasticities corresponding to those three channels of responses. The… 

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Optimal Labor Income Taxation

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