TY - JOUR
T1 - Higher taxes at the top? The role of tax avoidance
AU - Uribe-Terán, Carlos
N1 - Publisher Copyright:
© 2021 The Author(s)
PY - 2021/8
Y1 - 2021/8
N2 - How does the presence of endogenous tax compliance alter optimal taxation in the United States? Using a full-scale macroeconomic model augmented with endogenous tax avoidance, I show that extremely high marginal tax rates for top earners cannot be sustained in equilibrium. Revenue- and welfare-maximising tax rates range between 36.4% and 38.4% in the long run, which are very close to the status quo. These results are robust to the calibration of the labour supply's Frisch elasticity, and the labour response explains, at most, 60% of the variation of taxable income in the short run. Moreover, tax hikes on top earners are not effective redistribution mechanisms in the presence of tax avoidance.
AB - How does the presence of endogenous tax compliance alter optimal taxation in the United States? Using a full-scale macroeconomic model augmented with endogenous tax avoidance, I show that extremely high marginal tax rates for top earners cannot be sustained in equilibrium. Revenue- and welfare-maximising tax rates range between 36.4% and 38.4% in the long run, which are very close to the status quo. These results are robust to the calibration of the labour supply's Frisch elasticity, and the labour response explains, at most, 60% of the variation of taxable income in the short run. Moreover, tax hikes on top earners are not effective redistribution mechanisms in the presence of tax avoidance.
KW - Fiscal Policy
KW - Heterogeneous Agents
KW - Optimal Taxation
KW - Tax Administration
UR - http://www.scopus.com/inward/record.url?scp=85110011125&partnerID=8YFLogxK
U2 - 10.1016/j.jedc.2021.104187
DO - 10.1016/j.jedc.2021.104187
M3 - Artículo
AN - SCOPUS:85110011125
SN - 0165-1889
VL - 129
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
M1 - 104187
ER -