Key characteris,cs of 3 papers

Milligan-Smart (M-S): es,mate behavioural responses (reported incomes) of top earners, to compute maximum top marginal tax rates (MTRs) using formula

Other two papers assume NO behavioural responses Murphy-Veall-Wolfson (M-V-W): compute progressivity of tax expenditures for top earners (standard assn)

Heisz-Murphy (H-M): decompose redistribu,ve impact of selected tax and transfer programs into measures of progressivity and size

The laKer two papers require inquiry into behaviour and economic incidence for meaningful policy assessment

Findings from all papers require broader economic and scal impact assessments for useful policy guidance

Issues in compu,ng maximum top MTR (*)

* is revenue-maximizing rate; formula ignores welfare of top earners; likely that social op,mum rate < *

Issues in es,ma,ng elas,city () of reported incomes (or income shares) with respect to (1 MTR)

reects both real and tax-planning/avoidance behaviour; broaden base, ,ghten enforcement: reduce & raise *

Factors sugges,ng op,mal top rate higher than * Factors sugges,ng op,mal top rate lower than * Focuses on top 5%, 1%, or even 0.1%; es,mate of is lower for high incomes below top 1%; op,mal may be higher for that income bracket than for top bracket; Assessed total incomes (2010): $100-149K $118 bn; $150-250K $69 bn; $250K+ $109 bn BOTTOM LINE???

Behavioural eects: incidence maKers! Relevant for policy inferences from M-V-W and H-M If personal tax increase falls (mainly) on individual (rather than employer or client), then eec,ve for redistribu,on in short run [similarly if benet increase mainly redounds to individual rather employer]

If personal tax increase falls (mainly) on employer or client (shioing of incidence), then does not redistribute income from those taxpayers, but likely redistributes high-paid jobs, high-value industries, to other jurisdic,ons

If benet increase redounds (mainly) to employers rather than individual workers, then redistribu,on may arise mainly through increased employment of lower-paid workers rather than increased net income per worker

More incidence!

Broadening taxable income base (e.g. employee stock op,ons as in M-V-W) may reduce poten,al avoidance/ tax-planning (reduces ) but incidence s,ll falls on employers if interna,onally compe,,ve for top management or have tax-compensa,on programs

Issues of mobility of labour cross-provincial vs. mobility between Canada and other countries (esp. U.S.) Cultural issues (e.g. Quebec, Atlan,c) aect mobility

Hence, interpreta,on of all ndings in M-V-W and H-S requires deeper analysis of incidence issues, impacts on broader measures of impacts on total tax revenues from all sources, secondary impacts on other (beKer-quality but not highest-paying) industries and jobs

Decomposi,on of redistribu,ve impacts H-M paper useful for thinking about both structure and size of

programs (both tax and transfer) in redistribu,ve impact Kakwani progressivity index for tax (Pt), transfer (Pb), measure

departures from propor,onality; what program components? Reynolds-Smolensky decomposi,ons of redistribu,ve impacts (R): Taxes: Rt = Pt (t/1t) where t is average tax rate Benets: Rb = Pb (b/1+b) where b is average benet rate

Country with a heavy avg. tax rate but less progressivity can redistribute more than country with greater tax progressivity but lower avg. tax rate; size of welfare state maKers more than how progressively it is nanced; redistribu,on vs. inequality impacts Implica,ons for scal policies, redistribu,on, inequality Issue of how much of t goes to b vs spending on non-redistribu,ve programs (e.g. highways, defence, research, etc.) Universal program nanced by propor,onate rate: redistribu,ve

Policy changes: Pt & Pb as well as t & b endogenous via behav. response