Arbeitspapier

Incentives, Globalization, and Redistribution

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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.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 8450

Classification
Wirtschaft
Taxation and Subsidies: Efficiency; Optimal Taxation
Economic Integration
Equity, Justice, Inequality, and Other Normative Criteria and Measurement
Subject
redistributive taxation
performance-based contracts
market integration

Event
Geistige Schöpfung
(who)
Haufler, Andreas
Perroni, Carlo
Event
Veröffentlichung
(who)
Center for Economic Studies and Ifo Institute (CESifo)
(where)
Munich
(when)
2020

Handle
Last update
10.03.2025, 11:43 AM CET

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Object type

  • Arbeitspapier

Associated

  • Haufler, Andreas
  • Perroni, Carlo
  • Center for Economic Studies and Ifo Institute (CESifo)

Time of origin

  • 2020

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