April 2, 2021, 11:00–12:15
This paper studies how labor income taxation interacts with the organization of knowledge and production, and ultimately the distribution of wages in the economy. A more progressive tax system reduces the time that managers allocate to work. This makes the organization of production less efficient and reduces wages at both tails of the distribution, which increases lower tail wage inequality and decreases upper tail wage inequality. The optimal tax system is only modestly more progressive than the current one in the United States. However, the optimal tax progressivity is substantially smaller than if the wage structure was exogeneous. joint with Ctirad Slavik.