Paul L. Caron

Tuesday, February 28, 2023

Risch Presents Trickle-Down Revisited Today At Columbia

Max Risch (Carnegie Mellon; Google Scholar) presents Trickle-Down Revisited at Columbia today as part of its Davis Polk & Wardwell Tax Policy Colloquium hosted by David Schizer: 

Max rischIn this paper I discuss what can be learned about “trickle-down” ideas from recent empirical evidence on tax incidence. Tax incidence, defined as the effect of tax policies on the distribution of welfare, provides an ideal framework because of the explicit focus on tracing the impacts of a policy beyond the directly affected group (ex. the rich). I arrive at three main lessons. First, recent evidence finds that business income taxes do affect the earnings of workers, but these effects are mostly a result of rent-sharing and taxation of rents, not from traditional supply-side channels. Second, there are systematic differences in the types of workers that are affected by the tax policies, so to understand how taxing businesses or business owners affects the distribution of welfare, it is not sufficient to treat workers/labor as a class. Third, across different income tax policies that statutorily affect the rich, the burden is generally ultimately born by the rich.

I conclude with a discussion of fruitful avenues of further research, particularly on how tax incidence depends on various institutional features of labor markets, product markets and tax systems.

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