Incentives, Globalization, and Redistribution

Andreas Haufler and Carlo Perroni

No 8450, CESifo Working Paper Series from CESifo

Abstract: We offer a new explanation for why taxes have become less progressive in many countries in parallel with an increase in income inequality. When performance-based compensation differentials are needed to incentivize effort, redistribution through progressive income taxes becomes less precisely targeted. Taxation reduces after-tax income inequality but undermines incentive contracts, lowering effort and raising pre-tax income differentials. Market integration can widen the spread of project returns and make contract choices more responsive to changes in the level of taxation, resulting in a lower optimum income tax rate even when individuals are not inter-jurisdictionally mobile.

Keywords: redistributive taxation; performance-based contracts; market integration (search for similar items in EconPapers)
JEL-codes: D63 F15 H21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cta and nep-int
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Incentives, globalization, and redistribution (2023)
Working Paper: Incentives, Globalization, and Redistribution (2022)
Working Paper: Incentives, Globalization, and Redistribution (2020)
Working Paper: Incentives, Globalization, and Redistribution (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8450

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