Thursday, December 8, 2011

Higher Top Tax Rates = Higher Productivity?

From Piketty, Saez, and Stantcheva, via VoxEU:
...while standard economic models assume that pay reflects productivity, ...top earners might be able to partly set their own pay by bargaining harder or influencing compensation committees. Naturally, the incentives for such ‘rent-seeking’ are much stronger when top tax rates are low.... increases in top 1% incomes now come at the expense of the remaining 99%.
...there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s.
Of course, raising income taxes on the rich might lead to more income being diverted into stock options and capital gains, but would that be a bad thing? Wouldn't that increase total investment and strengthen incentives for managers?

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