This paper derives optimal top tax rate formulas in a model where
top earners respond to taxes through three channels: labor supply,
tax avoidance, and compensation bargaining. The optimal top tax
rate increases when there are zero-sum compensation-bargaining
effects. We present empirical evidence consistent with bargaining
effects. Top tax rate cuts are associated with top one percent pretax
income shares increases but not higher economic growth. US CEO
"pay for luck" is quantitatively more prevalent when top tax rates
are low. International CEO pay levels are negatively correlated with
top tax rates, even controlling for firms' characteristics and performance.
"Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities."
American Economic Journal: Economic Policy,
Personal Income, Wealth, and Their Distributions
Taxation and Subsidies: Efficiency; Optimal Taxation
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Personnel Management; Executives; Executive Compensation