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Cited by 309

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What Happens When You Tax the Rich? Evidence from Executive Compensation

Goolsbee, Austan·2000·Journal of Political Economy
DOI 10.1086/262122
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Abstract

This paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995. The data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income. Indeed, this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period; one person alone can account for more than 2 percent. The decline, however, is almost entirely a short‐run shift in the timing of compensation rather than a permanent reduction in taxable income. The short‐run elasticity of taxable income with respect to the net‐of‐tax share exceeds one in this sample, but the elasticity after one year is at most 0.4 and probably closer to zero. Breaking out the tax responsiveness of different types of compensation shows that the large short‐run responses come almost entirely from a large increase in the exercise of stock options by the highest‐income executives in anticipation of the rate increases. Executives without stock options, executives with relatively lower incomes, and more conventional forms of taxable compensation such as salary and bonus show little responsiveness to tax changes.

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Citations

Cites

Research works printed but not linked: 49

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Cited by

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Metadata

Authors
Goolsbee, A.
Venue
Journal of Political Economy
Publisher
University of Chicago Press
Published
2000-04
Volume
108
Issue
2
Pages
352-378
ISSN
  • 0022-3808 (ISSN-L)
  • 1537-534X
DOI
10.1086/262122
OpenAlex
W2112624869
Cited by
309
References
1
FWCI
33.10
Type
journal article
Language
en
Open access
closed

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