Wojciech Kopczuk

Top Income Inequality and Tax Policy

In a recent NBER Working Paper, Wojciech Kopczuk, together with I. Delestre, H. Miller and K. Smith, observe that the share of pre-tax income flowing to the top of the UK income distribution increased continually and substantially in the three decades leading up to the financial crisis, but has changed little since 2013. Using microdata sampled from UK tax records, the researchers describe the nature of top incomes in the UK and how they are taxed. They show that wage income is the dominant source of pre-tax income, even for highest-income 0.1% of UK adults. But, ‘active’ business income – derived from self-employment or closely-held incorporated businesses – is considerably more important for the top 1% than for those with lower incomes. High-income wage earners work disproportionately in financial services. The high-income self-employed are predominately working in partnerships in professions such as accountancy and legal services. Overall, UK income taxes are progressive: average tax rates rise with income. Taxes on top incomes have been increased since 2010, with the result that the post-tax share of income flowing to the top has fallen. But average tax rates vary significantly within the top and depend on how income is received. Incomes from business ownership and investment are taxed at lower rates than employment income. They conclude by discussing options for reforming the taxation of top incomes.

Mr. Kopczuk’s research has focused on tax policy and income and wealth inequality He is a critic of the wealth tax. His papers have been published in Journal of Political Economy, Quarterly Journal of Economics, Review of Economic Studies and American Economic Review, and other journals.

Wojciech Kopczuk is Professor of Economics at Columbia University and is currently Editor-in-Chief of the Journal of Public Economics. He received his BA and Msc from the University of Warsaw and his MA and PhD from the University of Michigan. He taught at the University of British Columbia before joining Columbia University's faculty in 2003. He is also a research associate with the National Bureau of Economic Research's Public Economics program as well as a CESifo Research Network Fellow. He is currently President of the International Institute of Public Finance.