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Trickle Down : A Model With Endogenous Wages

In this Section we study the optimal design of top income taxes.1 We have already covered optimal top income taxation in a simple Mirrlees framework in Section 2. Today, we will start from the “trickle down” model with endogenous wages introduced by Stiglitz (1982). We then analyze an example of optimal taxation in a general equilibrium model where workers choose between di↵erent occupations/sectors (Rothschild Scheuer, 2016). Finally, we present a model where top earners respond to taxes on three margins: labor supply, tax avoidance, and compensation bargaining (Piketty Saez Stantcheva, 2014).