Do higher income taxes on top earners trickle down? A local labor markets approach

Paul M. Kindsgrab

Journal of Public Economics, 2022, vol. 214, issue C

Abstract: This paper measures how much higher income taxes on U.S. top 1% earners “trickle down” and reduce other workers’ wages via geographically concentrated spillovers. Using an exposure design that combines time-series variation in the federal marginal tax rate for top 1% earners with cross-sectional variation in the top 1% income share across local labor markets, I find very little evidence of local trickle-down effects. The point estimates imply zero local trickle-down effects. At conventional levels of confidence, the estimates are statistically inconsistent with a one percentage point increase in the top tax rate reducing worker wages by more than −0.08%. These results undermine claims that trickle-down effects should be an important consideration in setting top tax rates.

Keywords: Top Income Taxation; Tax Incidence; Optimal Taxation (search for similar items in EconPapers)
JEL-codes: H21 H22 H23 H24 H31 J30 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:214:y:2022:i:c:s0047272722000913

DOI: 10.1016/j.jpubeco.2022.104689

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