Higher Marginal Tax Rates Will Accelerate Academic Economic Research Progress

Here is my cross-blog post  pointing out an unintended consequence of raising marginal taxes on the wealthy.  Academics’ time allocated to consulting will decline and university research effort will increase.   This prediction is based on the assumption that top economists do respond to incentives.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

15 thoughts on “Higher Marginal Tax Rates Will Accelerate Academic Economic Research Progress”

  1. Your analogy to Donohue & Levitt’s argument (abortions reduce crime a few decades later) is worse than bad. They posit a time lag of twenty years or so, while you are talking about an immediate effect. Even worse, their argument has been soundly refuted. Moreover, like too many economists, you appear to believe that the only incentive, only variable worth maximizing, is money. [Or is your post tongue in cheek?]

  2. There could even be a double dividend if teaching or mentoring have multiplier effects. Sounds like a revenue and efficiency enhancing tax increase to me.

    1. Trolling?

      Why?
      Because even with higher taxes the filthy, filthy, filthy, filthy rich will still be filthy, filthy, filthy rich?
      Or trolling because higher marginal rates affect individuals and it is cash-rich corporations that pay the Glenn Hubbards of the world to bafflegarb into a private mic ?
      Or trolling because even if the hypothesis was true, chances are many economists would spend more time not in research, but rather, in posting inanities to their blog?

  4. Granting the premise for the sake of argument, the assumption that research time is more productive than consulting is fishy. The problem with a lot of modern economics is the ivory tower: mathematically elegant models that only work indoors out of the rain. Contact with boardrooms isn’t the same as with factory floors, but it’s reality of a sort. I used to think that teaching also provided a reality check, but this only holds if at all for undergraduate teaching, which the stars can generally avoid. Graduate students are disciples - unbelievers go to a different guru -, and mainly reinforce the bubble. The blogosphere, as here, is nicely unrespectful.

  5. We keep hearing from conservative economists that higher marginal tax rates on the rich will make them stop working so hard. Surely that applies to conservative economists.

    Of course if marginal taxes on the wealthy go up and conservative economists DON’T do less consulting, they would then be exposed as completely full of shit. Let’s find out! (Not that I harbor any doubts…)

    Who was it who said that conservatives believe “the rich aren’t working because they don’t get paid enough, and the poor aren’t working because they get paid too much”?

    1. Don, those conservative economists are clearly correct. For evidence, just look at the marginal tax rates back in the Eisenhower and Kennedy days. The top tax bracket was NINETY PERCENT! No wonder those rich guys stopped working hard.

      Waitiminit! If the rich guys stopped working hard, wouldn’t they have gotten poor?

      Oh hell, I can’t figure it out, and my headache is coming back.

    2. Your conservative economists are probably making two arguments: one, that the rich will work less hard if their tax rates are raised; two, that this is a bad thing.

      I’m not an economist, but I think there’s broad agreement among economists on the first point. Paul Krugman agrees, for one. Based on your second paragraph, you seem to think the first point is wrong. I think it’s the second point that’s bullshit.

  7. Even on its own terms, this suggestion fails. The ratio between consulting and academic work might shift, but there’s no reason for academic effort to increase. For tenured professors, there’s no additional money compensation for the academic work, and for nontenured academics they’re either already at saturation or sensible enough to realize that, as a group, they should not enter into a price war that ultimately benefits only their customers. (Aren’t they?)

    What I think we would see, if the change in top marginal rate were actually big enough to push signficant behavioral changes, is an increase in nontaxable activities — conference gigs in hospitable climates, speaking engagements where the travel, accomodation and meals are particularly first-rate, educational seminars aboard cruise ships and so forth.

  8. It’s interesting that the argument starts by referring to “academics’ time” but in the very next sentence retreats to the statement that “top economists” respond to incentives.

    This could reflect the fact that economists, and no other social scientists (much less pure scientists or humanities scholars), expect to make a pile on consulting; the rest of us went into academe because we preferred the life of the mind to maximizing our income in the first place.

    Or it could go deeper. Remember Nietzsche’s aphorism that “man does not seek pleasure; only the Englishman does that.” Maybe a human being as such doesn’t care that much about marginal tax rates. Only the economist does that.

  9. “This prediction is based on the assumption that top economists do respond to incentives.”

    No it’s based on the assumption that a 4% higher marginal income tax rate on income over $250,000 somehow has massive incentive effects and also that academics are economically illiterate (probably true).

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