Wednesday, May 29, 2013

Top income shares vs. top marginal tax rates

From an important new paper on the NBER website by Thomas Piketty, Emmanuel Saez, Anthony Atkinson and Facundo Alvaredo, a rather striking graph (via Business Insider):

Just look at that slope.

The authors identify four key drivers of the massive increase in income of the top 1 percent:
  • Tax policy, which has varied over time and differs across countries. Top tax rates have moved in the opposite direction from top income shares. 
  • "A richer view of the labor market", where we contrast the standard supply-side model with one where pay is determined by bargaining and the reactions to top rate cuts may lead simply to a redistribution of surplus. Top rate cuts may lead managerial energies to be diverted to increasing their remuneration at the expense of enterprise growth and employment. 
  • Capital income. Inherited wealth is, in Europe if not in the United States, making a return. 
  • The correlation between earned income and capital income, which has substantially increased in recent decades in the United States. This has hardly been investigated.
There's lots more in that paper, of course. And now for an infographic, putting all of this into a different, more colourful perspective:

Road to Riches: Tracking the Journey of the Global Superwealthy
Source: Road to Riches: Tracking the Journey of the Global Superwealthy


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