Taxing Top CEO Incomes

Ales, Laurence; Sleet, Christopher

doi:10.1257/aer.20151093

Cited by 39 publications

(21 citation statements)

References 37 publications

(77 reference statements)

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“…Finally, this paper is related to the contemporary works of Sleet (2016) andScheuer andWerning (2016). Both of these papers study an optimal managerial/superstar taxation problem in competitive assignment environments.…”

Section: R E L a T E D L I T E R A T U R Ementioning

confidence: 99%

“…In our paper, on the other hand, firm size is endogenous, and it is affected by managerial ability as well as by the tax code. One way to interpret this difference is to view Ales and Sleet (2016) and Scheuer and Werning (2016) as studying short-run taxation implications where firm sizes do not adjust, while we provide a framework for the design of taxation in the long run where firm size is allowed to vary.…”

Section: R E L a T E D L I T E R A T U R Ementioning

confidence: 99%

“…17 A model featuring capital (or any additional adjustable input) can be analyzed along the lines of Terviö (2008) and Ales and Sleet (2016). In this case, the additional assumptions required are that the choice for capital be undistorted neither by taxation nor by credit constraints.…”

Section: E N V I R O N M E N Tmentioning

confidence: 99%

“…See, e.g., Blundell and MaCurdy (1999). Moreover, as argued by Diamond (1998), assuming small income effects for very high income individuals appears suitable due to the presence of large estates.16 See Bartelsman and Doms (2000) and references therein for additional details on the relationship between managerial talent, firm size, and firm productivity.17 A model featuring capital (or any additional adjustable input) can be analyzed along the lines of Terviö (2008) and Ales and Sleet (2016). In this case, the additional assumptions required are that the choice for capital be undistorted neither by taxation nor by credit constraints.…”

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confidence: 99%

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Taxing Atlas: Executive Compensation, Firm Size and Their Impact on Optimal Top Income Tax Rates

2015

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We study the optimal taxation of top labor incomes. Top income earners are modeled as managers who operate a span of control technology as in Rosen (1982). Managers are heterogeneous across talent, which is both effort-augmenting and total-factor-productivity improving. The latter gives rise to a positive scale-of-operations effect. A tax formula for optimal taxes is derived linking optimal marginal tax rates to preferences and technology parameters. We show how to quantify the model using readily available firm-level data. Our benchmark calibration focuses on the US. Our results suggest that optimal top taxes are roughly in line with the current statutory rates and, thus, are significantly lower than what previous optimal taxation studies that ignore the scale-of-operations effect have shown.Similar quantitative findings hold when we extend the analysis to a panel of developed countries. (JEL D31, H21, H24, M12, M52) * We thank Jeremy Bertomeu and Adriano Rampini for valuable discussions. We also thank Hank Bessembinder, Emilio Bisetti, Chris Edmond, Miguel Ferreira, Brent Glover, Burton Hollifield, Roozbeh Hosseini, Greg Kaplan, Finn Kydland, Christos Makridis, Pricila Maziero, Tomasz Piskorski, B. Ravikumar, Peter Rupert, Florian Scheuer, Ali Shourideh, Chris Sleet, Stephen Spear, Chris Telmer, Gustavo Ventura, Sunil Wahal, Randy Wright, Sevin Yeltekin, Ariel Zetlin-Jones and Marianne Holohan for editorial assistance. We also thank conference and seminar participants at Carnegie Mellon Ph.D. Macro-Finance lunch, Econometric Society summer meetings in Minneapolis, Society for Economic Dynamics annual meeting in Toronto, 5 th Tepper-LAEF conference in Pittsburgh, the University of Melbourne, 2015 WAMS/LAEF conference in Sydney, Arizona State University, University of Arizona, 2016 UNC Tax Symposium, and UNSW for feedback. E-mail: ales@cmu.edu (Ales); a.bellofatto@uq.edu.au (Bellofatto); Jessie.Jiaxu.Wang@asu.edu (Wang). I N T R O D U C T I O NHeightened concerns over recent trends in income inequality necessarily bring the taxation of high earners to the forefront of the policy agenda. 1 However, the vast literature in public finance is far from reaching consensus on what the top income tax rate should be: While the dominant view sets the optimal top tax rate above 70 percent, others have challenged the validity of such elevated taxes on various grounds. 2 This paper introduces a novel approach to modeling and quantifying the behavior of highly talented individuals in the economy, thus contributing to the aforementioned debate. Within top income earners, we focus on managers and show how to exploit well-established facts on firm size and managerial compensation to pin down the key forces shaping optimal income taxes. We find that top income taxes at the optimum are actually aligned with the current statutory rates in the US, unlike prevailing recommendations in the literature.Our approach is to take the standard optimal taxation environment and augment it with a role for managers via a span of control...

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Section: R E L a T E D L I T E R A T U R Ementioning

confidence: 99%

Section: R E L a T E D L I T E R A T U R Ementioning

confidence: 99%

Section: E N V I R O N M E N Tmentioning

confidence: 99%

mentioning

confidence: 99%

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Taxing Atlas: Executive Compensation, Firm Size and Their Impact on Optimal Top Income Tax Rates

2015

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“…13 See however Ales and Sleet (2016) and Scheuer and Werning (2017) who consider the role played by superstar e¤ects in earnings determination.…”

Section: Assumption (A)mentioning

confidence: 99%

Time-poor, working, super-rich

Corneo

2018

European Economic Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Any opinions expressed in this paper are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but IZA takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. The IZA Institute of Labor Economics is an independent economic research institute that conducts research in labor economics and offers evidence-based policy advice on labor market issues. Supported by the Deutsche Post Foundation, IZA runs the world's largest network of economists, whose research aims to provide answers to the global labor market challenges of our time. Our key objective is to build bridges between academic research, policymakers and society. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. has a positive marginal utility at the optimum and above a critical wage level it converts into a pure consumption good. Their labor-supply curve is first backward bending and then vertical. This can justify an optimal marginal tax rate on top incomes equal to 100 percent. Terms of use: Documents inTop earners in the vertical half-line of the labor-supply curve optimally refrain from spending their entire income. At the macroeconomic level, this can generate a lack of effective demand. With some qualifications, these findings carry over to models that include savings and philanthropy. JEL Classification:J22, H21, H24

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The Macro Trend of Asset Prices in the Age of Common Prosperity

2024

Building an Olive-Shaped Society

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Taxing Top CEO Incomes

Cited by 39 publications

References 37 publications

Taxing Atlas: Executive Compensation, Firm Size and Their Impact on Optimal Top Income Tax Rates

Taxing Atlas: Executive Compensation, Firm Size and Their Impact on Optimal Top Income Tax Rates

Time-poor, working, super-rich

The Macro Trend of Asset Prices in the Age of Common Prosperity

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