April 21, 2022: Almuth Scholl (Universität Konstanz)
Taxation of Top Incomes and Tax Avoidance
This paper studies the aggregate and distributional eﬀects of raising the top marginal income tax rate in the presence of tax avoidance. To this end, we develop a quantitative macroeconomic model with heterogeneous agents and occupational choice in which entrepreneurs can avoid taxes in two ways. On the extensive margin, entrepreneurs can choose the legal form of their business organization to reduce their tax burden. On the intensive margin, entrepreneurs can shift their income between diﬀerent tax bases. In a quantitative application to the US economy, we ﬁnd that tax avoidance lowers productive eﬃciency and reduces the eﬀectiveness of the top marginal tax rate at lowering inequality.
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