Abstract
Taxation affects the allocation of talented individuals across professions by blunting material incentives and thus magnifying nonpecuniary incentives of pursuing a “calling.” Estimates from the literature suggest that high-paying professions have negative externalities, whereas lowpaying 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 language | English (US) |
|---|---|
| Pages (from-to) | 1635-1682 |
| Number of pages | 48 |
| Journal | Journal of Political Economy |
| Volume | 125 |
| Issue number | 5 |
| DOIs | |
| State | Published - Oct 2017 |
Funding
This paper builds on and replaces a 2007 working paper solely authored by Weyl, “Psychic Income, Taxes and the Allocation of Talent.” We gratefully acknowledge the financial support of the Alfred P. Sloan and Marion Ewing Kauffman Foundations, which financed the research assistance of Joshua Bosshardt, Joe Mihm, Matt Solomon, and Daichi Ueda. We owe a debt to Claudia Goldin for providing access to data. We also appreciate the helpful comments of Tony Atkinson, Raj Chetty, Neale Mahoney, Andrei Shleifer, Joel Slemrod, Matthew Weinzierl, Vanessa Williamson, workshop attendees at Harvard University, Princeton University, the Hebrew University of Jerusalem, KU Leuven, the 2013 Allied Social Sciences Association meetings, the National Bureau of Economic Research Public Economics meeting, the 2013 Society for Economic Dynamics meeting, and especially Charlotte Cavaille, as well as the insightful discussion given by Florian Scheuer. We also thank the editor, Jesse Shapiro, and six anonymous referees for detailed comments. All errors are our own.
ASJC Scopus subject areas
- Economics and Econometrics