If you are measuring contributions to GDP, then of course it is entrepreneurs. But if the value-add depends upon the innovation, perhaps the innovation comes from researchers who are do not earn top-incomes, and the observed distribution of incomes (to entrepreneurs and 4/
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shareholders) is simply an artifact of who most effectively commercializes the innovation someone would have commercialized (or, more cynically, who most capably monopolizes the exploitation of the innovation, through patents or network effects). 5/
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Again, for empirical work, the problem is what to measure. How do you measure the work done at Xerox PARC that Apple and Microsoft later commercialized? To whom do we allocate the value created by the transistor, invented by but not exclusively exploited at Bell Labs? 6/
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Then, theoretically, there is the question of where any behavioral elasticity of taxation of top incomes would come from. At high levels of income, it can't plausibly come from consumption: very wealthy people have what Bill Gates described as "infinite wealth", no plausible 7/
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level of personal or familial consumption would exhaust their means. Yet very wealthy people clearly often remain motivated to accumulate wealth. It's theoretically misbegotten, in my view, to plug a standard consumption-based utility function into a standard-ish model, 8/
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however concave the function. Because at these levels of wealth, it's much more plausible that utility derives from interpersonal comparisons ( whether you think of these in terms of status games, or in terms of insurance against systemic shocks interfluidity.com/v2/3487.html ). And 9/
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if that's so, that would largely obviate the behavioral effects of top-taxes, because if top taxes are universally and consistently applied they'd conserve the effect of behavior on rank. You have to do the same thing to be the richest of them all whether all the rich pay 5% 10/
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of top income, or 95% of top income. /fin
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Very interesting, thank you! One of the highlights of twitter is just being able to ask people questions and get thoughtful answers.
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One of the highlights of twitter is people who are genuinely open and thoughtful interlocutors, a population which you are prominently among.
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(Another wonderful highlight of Twitter is getting to read such conversations between others, rather than having them be locked up in private letters—so thank you both! ☺️)