by From Lars Syll Given the lack of consensus in existing empirical analyzes and the difficulties of making causal inferences from macro-level panel data analyzes, it remains an open empirical question how cutting taxes on the rich affects economic outcomes. We believe the question is best answered by looking at the effects of major tax cuts packages, as the story of taxing the rich in the advanced democracies over the past 50 years is one of discrete and stark changes in policy … Our results show that major tax cuts for the rich increase income inequality in the years following the reform (t+1 to t+5). The magnitude of the effect is sizeable; on average, each major reform leads to a rise in top 1% share of pre-tax national income of over 0.7 percentage points. The results also show that
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from Lars Syll
Given the lack of consensus in existing empirical analyzes and the difficulties of making causal inferences from macro-level panel data analyzes, it remains an open empirical question how cutting taxes on the rich affects economic outcomes. We believe the question is best answered by looking at the effects of major tax cuts packages, as the story of taxing the rich in the advanced democracies over the past 50 years is one of discrete and stark changes in policy …
Our results show that major tax cuts for the rich increase income inequality in the years following the reform (t+1 to t+5). The magnitude of the effect is sizeable; on average, each major reform leads to a rise in top 1% share of pre-tax national income of over 0.7 percentage points. The results also show that economic performance, as measured by real Gross Domestic Product (GDP) per capita and the unemployment rate is not significantly affected by major tax cuts for the rich …
Our findings on the effects of growth and unemployment provide evidence against supply side theories that suggest lower taxes on the rich will induce labor supply responses from high-income individuals (more hours of work, more effort, etc.) that boost economic activity. Relatedly, they also show little support for the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost wider economic performance.
Overall, our analysis finds strong evidence that cutting taxes on the rich increases income inequality but has no effect on growth or unemployment.