NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Taxation of Superstars

Florian Scheuer, Iván Werning

NBER Working Paper No. 21323
Issued in July 2015
NBER Program(s):Labor Studies, Public Economics

How are optimal taxes affected by the presence of superstar phenomena at the top of the earnings distribution? To answer this question, we extend the Mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects. Perhaps surprisingly, rather than providing a rationale for higher taxes, we show that superstar effects provides a force for lower marginal taxes, conditional on the observed distribution of earnings. Superstar effects make the earnings schedule convex, which increases the responsiveness of individual earnings to tax changes. We show that various common elasticity measures are not sufficient statistics and must be adjusted upwards in optimal tax formulas. Finally, we study a comparative static that does not keep the observed earnings distribution fixed: when superstar technologies are introduced, inequality increases but we obtain a neutrality result, finding tax rates at the top unaltered.

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Document Object Identifier (DOI): 10.3386/w21323

Published:

  • Florian Scheuer & Iván Werning, 2017. "The Taxation of Superstars," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 211-270. citation courtesy of
  • Florian Scheuer & Iván Werning, 2016. "The Taxation of Superstars," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 211-270. citation courtesy of

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