CEBA talks 2020-2021
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Tax Progressivity and Wealth Inequality: Evidence from Forbes 400

Authors: Ji Hyung Lee, Yuya Sasaki, Alexis Akira Toda, and Yulong Wang

Abstract: Using Forbes 400 data together with historical data on tax rates and macroeconomic indicators, we study the relationship between the maximum marginal income tax rate and wealth inequality. We find through a novel tail regression model that a higher maximum tax rate is associated with a higher wealth Pareto exponent. Setting the maximum rate to 0.30–0.40 (as in U.S. currently) leads to an exponent of 1.5–1.8, while counterfactually setting it to 0.8 (as suggested by Piketty, 2014) would lead to an exponent of 2.6. We present a simple economic model that explains these findings and discuss the welfare implications of taxation.

Presentation slides