Thursday, August 9, 2018

High tax rates might have a negative effect on human capital investment

See Taxing Top Earners: A Human Capital Perspective. By Alejandro Badel (Georgetown University), Mark Huggett (Georgetown University) and Wenlan Luo (Tsinghua University). Excerpt:
"Conclusion

From a human capital perspective, we argue that the revenue maximizing top tax rate in the US is approximately 49 percent. Two new forces are the main quantitative drivers for why the model’s top rate is well below the 73 percent top tax rate from the established view. The widely-used tax rate formula which underlies the established view abstracts from these two new forces. These new forces are present in any dynamic model and are strengthened by the endogeneity of skills. They are strengthened because an increase in the top tax rate reduces the beneļ¬t of skill investment but not the cost of skill investment. Thus, the skills of top earners fall."

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.