2020

Tax Progressivity and Top Incomes Evidence from Tax Reforms

Reprint No. 2020:61

Author(s): Enrico Rubolino and Daniel WaldenströmYear: 2020 Title: Journal of Economic Inequality Volume (No.): 18 (3) Pages: 261–289
Online article (restrictions may apply)
Preliminary version


We study the link between tax progressivity and top income shares. Using variation from Western tax reforms in the 1980s and 1990s and synthetic control method estimation, we find that reductions in tax progressivity had large and lasting positive impacts on top income shares. The effects are largest within the top percentile and almost zero in the lower half of the top decile, and all results are robust to different model specifications, placebo tests in time and space, and controlling for other contemporaneous reforms. Searching for mechanisms, we find that the effects seem to operate mainly through reductions in top marginal tax rates and that the share of capital income in top incomes increased after the reforms, indicating that tax avoidance behavior could explain some of the observed effects.


Reference:
Rubolino, Enrico and Daniel Waldenström (2020), "Tax Progressivity and Top Incomes Evidence from Tax Reforms". Journal of Economic Inequality 18(3), 261–289.

Daniel Waldenström

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Interdisciplinary European Studies

The European Union and the Return of the Nation State

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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