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Taxing Top Incomes in a World of Ideas

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  • Charles I. Jones

Abstract

This paper considers top income taxation when (i) new ideas drive economic growth, (ii) the reward for successful innovation is a top income, and (iii) innovation cannot be perfectly targeted by a research subsidy—think about the business methods of Walmart, the creation of Uber, or the “idea” of Amazon. These conditions lead to a new force affecting the optimal top tax rate: by slowing the creation of new ideas that drive aggregate GDP, top income taxation reduces everyone’s income, not just income at the top. This force sharply constrains both revenue-maximizing and welfare-maximizing top tax rates.

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  • Charles I. Jones, 2022. "Taxing Top Incomes in a World of Ideas," Journal of Political Economy, University of Chicago Press, vol. 130(9), pages 2227-2274.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/720394
    DOI: 10.1086/720394
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    5. Florian Scheuer & Joel Slemrod, 2020. "Taxation and the Superrich," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 189-211, August.
    6. Jonas Loebbing, 2023. "Redistributive Income Taxation with Directed Technical Change," Rationality and Competition Discussion Paper Series 420, CRC TRR 190 Rationality and Competition.
    7. Jonas Loebbing, 2020. "Redistributive Income Taxation with Directed Technical Change," CESifo Working Paper Series 8743, CESifo.
    8. Kevin X. D. Huang & Munechika Katayama & Mototsugu Shintani & Takayuki Tsuruga, 2022. "Sticky wages in a world of ideas," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1757-1781, October.
    9. Manta Eduard Mihai & Davidescu Adriana Ana Maria & Geambasu Maria Cristina & Florescu Margareta Stela, 2023. "Exploring the research area of direct taxation. An empirical analysis based on bibliometric analysis results," Management & Marketing, Sciendo, vol. 18(s1), pages 355-383, December.
    10. Joshua Rauh & Ryan J. Shyu, 2019. "Behavioral Responses to State Income Taxation of High Earners: Evidence from California," NBER Working Papers 26349, National Bureau of Economic Research, Inc.
    11. Chargaziya, L., 2023. "On the connection between cultural values and personal income taxation," Journal of the New Economic Association, New Economic Association, vol. 58(1), pages 32-46.
    12. Kilström, Matilda & Roth, Paula, 2024. "Risk-sharing and entrepreneurship," Journal of Comparative Economics, Elsevier, vol. 52(1), pages 341-360.
    13. Marchiori, Carmen & Minelli, Enrico, 2023. "Talent, basic research and growth," Journal of Economic Theory, Elsevier, vol. 213(C).
    14. Støstad, Morten Nyborg & Cowell, Frank, 2024. "Inequality as an externality: Consequences for tax design," Journal of Public Economics, Elsevier, vol. 235(C).
    15. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2020. "Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium," Econometrica, Econometric Society, vol. 88(2), pages 469-493, March.
    16. Gross, Till & Klein, Paul, 2022. "Optimal tax policy and endogenous growth through innovation," Journal of Public Economics, Elsevier, vol. 209(C).
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    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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