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Time-poor, working, super-rich

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  • Corneo, Giacomo

Abstract

This paper revisits the standard model of labor supply under two additional assumptions: consumption requires time and some limited amount of work is enjoyable. Whereas introducing each assumption without the other one does not produce novel insights, combining them together does if the wage rate is sufficiently high. For top earners, work 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%%. Top 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.

Suggested Citation

  • Corneo, Giacomo, 2018. "Time-poor, working, super-rich," European Economic Review, Elsevier, vol. 101(C), pages 1-19.
    • Handle: RePEc:eee:eecrev:v:101:y:2018:i:c:p:1-19
    DOI: 10.1016/j.euroecorev.2017.09.009
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    Cited by:

    1. Gilles Saint-Paul, 2021. "Secular satiation," Journal of Economic Growth, Springer, vol. 26(3), pages 291-327, September.

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    More about this item

    Keywords

    Super-rich; Labor supply; Time allocation; Optimal taxation of top labor incomes; Effective demand;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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