IESET.
Hypotheses·distribution·chicago_taxes_optimal_ramsey_excess_burden_high_marginal_rate

Across an OECD panel 1980-2023, the deadweight loss (excess burden) of marginal income taxation rises convexly in the top statutory marginal rate, with the slope accelerating sharply once top rates exceed roughly 50%.

Operationalised: the elasticity of taxable income (ETI) with respect to the net-of-tax rate exceeds 0.4 in country-years where the top statutory rate is above 60%, and is below 0.25 in country-years where the top rate is below 40%. As a consequence, the revenue-maximising top marginal rate (the inverse- elasticity bound that defines the Laffer top) lies below 70% in every country in the sample. The hypothesis is the Ramsey-Mirrlees- Saez optimal-tax framework calibrated to OECD micro evidence and framed in the Chicago tradition (Harberger triangles convex in marginal rates).

INCONCLUSIVEengine/runs/chicago_taxes_optimal_ramsey_excess_burden_high_marginal_rate

INCONCLUSIVE_DATA_PENDING — treatment 'top_rate_change_event' has no within-country variation under country fixed effects

confidence cueResult card produced; verdict unclassified.

policy briefCoverage too thin

In ordinary language

Over a long period, do more market-oriented institutions translate into higher income or productivity, once the comparison looks beyond a single success story?

plain answer

This test cannot make a firm call yet. treatment 'top_rate_change_event' has no within-country variation under country fixed effects

why it matters

Distributional claims often sound morally clear but are empirically complex. This test asks whether the proposed channel explains real differences across places.

how the test works

It compares 21 country or place units from 1980 to 2023, using a panel fe design, with fixed effects for country and year.

what was measured
What changed
  • Top statutory marginal rate
  • Net of tax rate
What we checked
  • Top 1pct taxable income share
  • Elasticity of taxable income estimate
  • Top 1pct real income growth
what this does not prove

A single test is not the whole truth. It narrows the claim under a specific sample, time period, and method. Strong policy conclusions need the pattern to survive nearby tests, alternative data, and serious objections.

verification

0 input datasets, 0 unresolved missing series, provenance status: no input vintages recorded.

Results

engine/runs/chicago_taxes_optimal_ramsey_excess_burden_high_marginal_rate
1007550250198020022023USAGBRDEUFRAITAESPNLD
illustrative sketch · run pending
No coefficients yet. When the model fires, this chart will show top_1pct_taxable_income_share across 21 sampled countries over 1980–2023.
The shapes above are stylised — none of the lines are real data.
Placeholder for chicago_taxes_optimal_ramsey_excess_burden_high_marginal_rate. Published chart will be generated from engine/runs/chicago_taxes_optimal_ramsey_excess_burden_high_marginal_rate/chart_data.json.

Pre-registration

pre-registered
first-spec commit 098ce96 · 2026-04-30T12:57:33Z
run generated · 2026-06-29T17:48:33Z

Across an OECD panel 1980-2023, the deadweight loss (excess burden) of marginal income taxation rises convexly in the top statutory marginal rate, with the slope accelerating sharply once top rates exceed roughly 50%. Operationalised: the elasticity of taxable income (ETI) with respect to the net-of-tax rate exceeds 0.4 in country-years where the top statutory rate is above 60%, and is below 0.25 in country-years where the top rate is below 40%. As a consequence, the revenue-maximising top marginal rate (the inverse- elasticity bound that defines the Laffer top) lies below 70% in every country in the sample. The hypothesis is the Ramsey-Mirrlees- Saez optimal-tax framework calibrated to OECD micro evidence and framed in the Chicago tradition (Harberger triangles convex in marginal rates).

Falsification criterion — what would disprove this

set before the run · honoured after

This hypothesis is considered falsified if:

Not supported if (a) the panel ETI estimate in country-years with top rate above 60% is below 0.4, OR (b) the ETI in country-years with top rate below 40% is above 0.35, OR (c) the inverse-elasticity revenue-maximising rate exceeds 75% in any major OECD country (USA, GBR, DEU, FRA, ITA, JPN), OR (d) the convex-rising relationship between top rate and ETI is not statistically distinguishable from a flat or declining relationship at p<0.05. A heterodox / Diamond-Saez-Piketty high-Laffer-top reading wins cleanly if (c) fails — i.e. revenue-maximising top rate is in the 70-90% range commonly cited in their work.

formal test & threshold
test:      panel_eti_top_rate_convex_inverse_elasticity_laffer
threshold: median_ETI_top_rate_above_60pct >= 0.4 AND median_ETI_top_rate_below_40pct <= 0.25 AND inverse_elasticity_revenue_max_rate <= 70% in all of {USA, GBR, DEU, FRA, ITA, JPN} AND ETI-top-rate slope positive at p<0.05 with quadratic positive at p<0.10

Method

Template
panel_fe
Fixed effects
country, year
Clustering
country
Sample
21 countries · 1980 – 2023
Evidence type
associational

Two-stage estimation. Stage 1: estimate ETI per country-year-window using Saez-Slemrod-Giertz event-study methodology around top-rate changes (top-rate-change-cohort vs control-cohort difference in log-taxable-income growth divided by log-net-of-tax-rate change). Stage 2: regress estimated ETI on contemporaneous top statutory marginal rate with country and year FE; pre-registered prediction is positive convex relationship. Compute revenue-maximising top rate as 1 / (1 + a*ETI) where a is the Pareto parameter from WID top-income-share data; pre-registered prediction is that this inverse-elasticity bound lies below 70% in every country in the sample. Robustness: alternative ETI estimation via Auten-Carroll 1999 panel approach; report dispersion of estimates.

Data

VariableSourceTransform
top_1pct_taxable_income_share
outcome
world_bank_wdi:SI.POV.GINItier 2
level_share
elasticity_of_taxable_income_estimate
outcome
academic:saez_slemrod_giertz_eti_paneltier 4
estimated_eti_per_country_year
top_1pct_real_income_growth
outcome
world_bank_wdi:SI.POV.GINItier 2
log_diff_5yr
top_statutory_marginal_rate
treatment
oecd:OECD_TaxDB_table_I.7tier 2
level_pct
net_of_tax_rate
treatment
oecd:OECD_TaxDB_table_I.7tier 2
derived_one_minus_top_rate
top_rate_change_event
treatment
derived:top_marginal_rate_change_datestier 4
indicator_event_year
log_gdp_per_capita
control
world_bank_wdi:NY.GDP.PCAP.PP.KDtier 2
log
trade_openness
control
world_bank_wdi:NE.TRD.GNFS.ZStier 2
level
capital_account_openness
control
academic:chinn_ito_kaopentier 4
level
wgi_government_effectiveness
control
wgi:GOV_WGI_GE.ESTtier 4
level

● ready  · ● pending  · ● reconstruct-needed

Detailed result card

Result card — chicago_taxes_optimal_ramsey_excess_burden_high_marginal_rate

Verdict: INCONCLUSIVE_DATA_PENDING — treatment 'top_rate_change_event' has no within-country variation under country fixed effects

Pre-registration

  • Claim: Across an OECD panel 1980-2023, the deadweight loss (excess burden) of marginal income taxation rises convexly in the top statutory marginal rate, with the slope accelerating sharply once top rates exceed roughly 50%. Operationalised: the elasticity of taxable income (ETI) with respect to the net-of-tax rate exceeds 0.4 in country-years where the top statutory rate is above 60%, and is below 0.25 in country-years where the top rate is below 40%. As a consequence, the revenue-maximising top marginal rate (the inverse- elasticity bound that defines the Laffer top) lies below 70% in every country in the sample. The hypothesis is the Ramsey-Mirrlees- Saez optimal-tax framework calibrated to OECD micro evidence and framed in the Chicago tradition (Harberger triangles convex in marginal rates).
  • Falsification rule: Not supported if (a) the panel ETI estimate in country-years with top rate above 60% is below 0.4, OR (b) the ETI in country-years with top rate below 40% is above 0.35, OR (c) the inverse-elasticity revenue-maximising rate exceeds 75% in any major OECD country (USA, GBR, DEU, FRA, ITA, JPN), OR (d) the convex-rising relationship between top rate and ETI is not statistically distinguishable from a flat or declining relationship at p<0.05. A heterodox / Diamond-Saez-Piketty high-Laffer-top reading wins cleanly if (c) fails — i.e. revenue-maximising top rate is in the 70-90% range commonly cited in their work.
  • Falsification test: panel_eti_top_rate_convex_inverse_elasticity_laffer

Estimate

  • Error: treatment 'top_rate_change_event' has no within-country variation under country fixed effects

Variables resolved

  • world_bank_wdi:SI.POV.GINI → top_1pct_taxable_income_share (outcome, publisher=world_bank_wdi, n=2430)
  • world_bank_wdi:SI.POV.GINI → top_1pct_real_income_growth (outcome, publisher=world_bank_wdi, n=2430)
  • derived:top_marginal_rate_change_dates → top_rate_change_event (treatment, publisher=constructed, n=924)
  • world_bank_wdi:NY.GDP.PCAP.PP.KD → log_gdp_per_capita (controls, publisher=world_bank_wdi, n=8325)
  • world_bank_wdi:NE.TRD.GNFS.ZS → trade_openness (controls, publisher=world_bank_wdi, n=10714)
  • wgi:GOV_WGI_GE.EST → wgi_government_effectiveness (controls, publisher=wgi, n=5168)

Variables missing data

  • academic:saez_slemrod_giertz_eti_panel (outcome, name=elasticity_of_taxable_income_estimate) — vintage not on disk
  • oecd:OECD_TaxDB_table_I.7 (treatment, name=top_statutory_marginal_rate) — vintage not on disk
  • oecd:OECD_TaxDB_table_I.7 (treatment, name=net_of_tax_rate) — vintage not on disk
  • academic:chinn_ito_kaopen (controls, name=capital_account_openness) — vintage not on disk

Generated by scripts/run_panel_fe.py at 2026-06-29T17:48:33+00:00

Strongest opposing argument

Every hypothesis ships with its charitable opposing argument. The framework earns credibility by handling objections at their strongest, not weakest.

Notes

Saez-Slemrod-Giertz (2012 JEL ETI survey), Diamond-Saez (2011 JEP), Piketty-Saez-Stantcheva (2014 AEJ:EP), Auten-Carroll (1999 RESTAT), Mirrlees (1971 ReStud), Ramsey (1927 EJ) form the canonical lineage. The hypothesis is structured around the Saez-Slemrod-Giertz decomposition of ETI into real-labour-supply, tax-base-shifting, and evasion responses; the headline ETI estimate combines all three and is the relevant elasticity for the deadweight-loss calculation even if the labour-supply component is small.

Authored framework. Read the transparency note.