Discussion paper

DP11935 Trends and gradients in top tax elasticities: Cross-country evidence, 1900-2014

We compile data spanning the period 1900–2014 and up to 30 countries to study long-run patterns in the tax elasticity of top incomes. Our results show that top tax elasticities vary tremendously over time; they were medium-to-low before 1950, virtually zero during the postwar era up to 1980 and have thereafter increased to unprecedented levels. We document a strong income gradient in tax response within the top, underlining the importance to study even small top groups separately. Several mechanisms are investigated. Tax-driven income shifting between wage and capital income is important in the very top. Wars, financial crises, and country-specific effects and trends have bearing on top elasticities whereas standard macroeconomic factors and indicators of “real responses” do not.

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Citation

Waldenström, D and E Rubolino (2017), ‘DP11935 Trends and gradients in top tax elasticities: Cross-country evidence, 1900-2014‘, CEPR Discussion Paper No. 11935. CEPR Press, Paris & London. https://cepr.org/publications/dp11935