Abstract:

I study the equity-efficiency trade-off of top wealth taxation in an economy which captures the concentration of entrepreneurial activity at the top of the wealth distribution, where wealthier entrepreneurs own firms that produce at a larger scale and impose larger markups. 
Implementing a top wealth tax, and uniformly redistributing the tax revenues, reduces aggregate production and the equilibrium wage workers receive.
Furthermore, the wealth tax reduces the aggregate markup in the economy, increasing the labor share of income accruing to workers. I show that the same top wealth tax induces smaller redistributive effects and higher production losses when instead entrepreneurs impose homogeneous and constant markups, independent on their firms' scale of production.
I quantify these effects in a dynamic framework calibrated to the US economy in which entrepreneurs accumulate wealth by investing in their own firms. I study a wealth tax raising 1% of GDP in tax revenues imposed on the wealthiest 1% of households. When market power heterogeneity across entrepreneurs is neglected the wealth tax effects  on wage losses are overestimated by 1.4 pp and production losses by 1.1 pp.

for information angela.baldassarre@unibocconi.it or giulia.zenoni@unibocconi.it