Revisiting tax on top income

Cagri Kumru | Australian National University

In this paper we study taxing income in a model with an entrepreneurship decision which generates realistic wealth and income distributions. We study four distinct cases: revenue and welfare maximizing tax on top 1% of income and revenue and welfare maximizing value of the overall progressivity. Our results indicate that instead of heavily taxing the top income, it would be better to make the tax system overall more progressive.