Date/Time Date(s) - 27/11/202411:30 am - 12:30 pm
Yanran Guo, Assistant Professor at York University, will present to our economics graduate students and faculty on Wednesday in KTH 334!
Yanran Guo’s research focuses on Macroeconomics, Entrepreneurship, Firm Dynamics, Income and Wealth Inequality, Taxation, specifically with the implications of re distributive taxation for inequality and productivity. She will present the paper, “Taxing Top Incomes in a World of Entrepreneurs“.
Abstract
This paper shows that high top marginal income tax rates generate large aggregate output and productivity losses. These losses arise because taxes distort the investment decisions of entrepreneurs, who constitute a large share of high-income earners. I identify two novel distortions. The first is the “productivity investment effect”. Top income tax rates distort the productivity investment decisions not only of entrepreneurs who are already in the top income bracket but also of those who will become top earners in the future by building up their firms. The second force is the “incorporation timing effect”. Successful entrepreneurs grow their firms and then sell their businesses to the corporate sector through incorporation. High top tax rates push these entrepreneurs to sell before their firms reach their full productivity potential. This force is driven by a feature of the tax code – the sale of a firm is treated as capital gains, which are taxed at a lower rate than ordinary income. Both effects imply that even though it targets only a small fraction of households, increasing the top marginal income tax rate generates large output costs by decreasing productivity. Since lower productivity erodes the tax base, in a calibrated model, the revenue-maximizing top income tax rate is 45%.
View Yanran Guo’s professional website.