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CEP election analysis

Top Rate of Income Tax

The main political parties disagree about the appropriate rate of income Tax on the highest incomes. This note lays out the economic principles surrounding the top rate of income tax and considers the evidence that high earners respond to higher tax rates by working less or by taking steps to avoid tax. The evidence suggests that increased avoidance rather than reduced labour supply is the biggest problem when raising tax rates on the rich.

Alan Manning

16 April 2015     Paper Number CEPEA029

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