Taxation and the Allocation of Talent

Benjamin B. Lockwood, Charles Gordon Nathanson, E. Glen Weyl

Research output: Working paper

Abstract

Taxation affects the allocation of talented individuals across professions by blunting material incentives and thus magnifying non-pecuniary incentives of pursuing a “calling.” Estimates from the literature suggest high-paying professions have negative externalities, whereas low-paying professions have positive externalities. A calibrated model therefore prescribes negative marginal tax rates on middle-class incomes and positive rates on the rich. The welfare gains from implementing such a policy are small and are dwarfed by the gains from profession-specific taxes and subsidies. These results depend crucially on externality estimates and labor-substitution patterns across professions, both of which are very uncertain given existing empirical evidence.
Original languageEnglish (US)
PublisherSocial Science Research Network (SSRN)
Number of pages67
StatePublished - Apr 25 2016

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    Lockwood, B. B., Nathanson, C. G., & Glen Weyl, E. (2016). Taxation and the Allocation of Talent. Social Science Research Network (SSRN). http://ssrn.com/abstract=1324424