Zipf’s law is a very tight constraint on the class of admissible models of local growth. It says that for most countries the size distribution of cities strikingly fits a power law: the number of cities with populations greater than S is proportional to 1/S. Suppose that, at least in the upper tail, all cities follow some proportional growth process (this appears to be verified empirically). This automatically leads their distribution to converge to Zipf’s law. I.

This paper use income tax return data from 1960 to 2000 to analyze the link between reported incomes and marginal tax rates. Only the top 1 % incomes show evidence of behavioral responses to taxation. The data displays striking heterogeneity in the size of responses to tax changes overtime, with no response either short-term or long-term for the very large Kennedy top rate cuts in the early 1960s, and striking evidence of responses, at least in the short-term, to the tax changes since the 1980s. The 1980s tax cuts generated a surge in business income reported by high income individual taxpayers due to a shift away from the corporate sector, and the disappearance of business losses for tax avoidance. The Tax Reform Act of 1986 and the recent 1993 tax increase generated large short-term responses of wages and salaries reported by top income earners, most likely due to re-timing in compensation to take advantage of the tax changes. However, it is unlikely that the extraordinary trend upward of the shares of total wages accruing to top wage income earners, which started in the 1970s and accelerated in the 1980s and especially the late 1990s, can be explained by the evolution of marginal tax rates.

A common view is that there is little correlation between �rm performance and CEO pay. Using a new �fteen-year panel data set of CEOs in the largest, publicly traded U. S. companies, we document a strong relationship between �rm performance and CEO compensation. This relationship is generated almost entirely by changes in the value of CEO holdings of stock and stock options. In addition, we show that both the level of CEO compensation and the sensitivity of compensation to �rm performance have risen dramatically since 1980, largely because of increases in stock option grants. I.

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This paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates (ETI) using tax return data. First, we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis. We discuss what other parameters should be estimated when the elasticity is not a sufficient statistic. Second, we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the United States to illustrate those issues. Third, we provide a critical discussion of most of the taxable income elasticities studies to date, both in the United States and abroad, in light of the theoretical and empirical framework we laid out. Finally, we discuss avenues for future research.

In recent years, a handful of countries have converted the financing of their social security systems from pay-as-you-go (PAYGO) to partial or full funding. Privatization is viewed as one way to insulate social security from the political and demographic pressures that currently threaten the financial stability of PAYGO systems. However, privatization would improve a nation’s situation only if such a reform increases domestic saving. In this paper I use evidence from Chile, where social security was privatized in 1981, to assess the impact of such a reform on household saving rates. I find that the reform provided a significant stimulus for saving among higher income households, increasing their saving rates by more than seven percentage points. This increase in saving at the household level translates into an increase in national saving of more than two percent of GDP.

This paper presents summary statistics on the occupations of taxpayers in the top percentile of the national income distribution and fractiles thereof, as well as the patterns of real income growth between 1979 and 2005 for top earners in each occupation, based on information reported on U.S. individual income tax returns. The data demonstrate that executives, managers, supervisors, and financial professionals account for about 60 percent of the top 0.1 percent of income earners in recent years, and can account for 70 percent of the increase in the share of national income going to the top 0.1 percent of the income distribution between 1979 and 2005. During 1979‐2005 there was substantial heterogeneity in growth rates of income for top earners across occupations, and significant divergence in incomes within occupations among people in the top 1 percent. We consider the implications for various competing explanations for the substantial changes in income inequality that have occurred in the U.S. in recent times. We then use panel data on U.S. tax returns spanning the years 1987 through 2005, to estimate the elasticity of gross income with respect to net‐of‐tax share (that is, one minus the marginal tax rate). Information on occupation allows us to control for

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We examine the importance of income and capital gains tax rates in explaining the share of national adjusted gross income (AGI) that is reported by the top one-half of one percent of all taxpayers. Econometric results indicate that both taxes and macroeconomic factors have important effects on the top AGI share. Specifically, cutting the top income or capital gains tax rate would increase the top AGI share, but not by enough to increase revenues. The preponderance of evidence suggests that the top AGI share is affected more by the capital gains tax rate than by the income tax rate, but that fluctuations in real Gross Domestic Product have even larger effects on the top AGI share.

The inability to predict the earnings of growth stocks, such as biotechnology and internet stocks, leads to the high volatility of share prices and difficulty in applying the traditional valuation methods. This paper attempts to demonstrate that the high volatility of share prices can nevertheless be used in building a model that leads to a particular size distribution, which can then be applied to price a growth stock relative to its peers. The model focuses on both transient and steady state behavior of the market capitalization of the stock, which in turn is modeled as a birth-death process. In addition, the model gives an explanation to an empirical observation that the market capitalization of internet stocks tends to be a power function of their relative ranks. Issuing stocks is arguably the most important way for growth companies to nance their projects, and in turn helps transfer new ideas into products and services for society. Although the components of growth stocks may change over time (perhaps consisting of railroad and utility stocks in the early 1900's, and biotechnology and internet stocks in 2001), studying the general properties of growth stocks is essential to understand nancial markets and economic growth. However, uncertainty is manifest for growth stocks. For example, (a) growth stocks tend to have low or even negative earnings; (b) the volatility of growth stocks is high (both their daily appreciation and depreciation rates are high); (c) it is difficult to predict the upward and downward trends. Consequently, it poses a great challenge to derive a meaningful mathematical model within the classical valuation framework, such as the net present value method. Since it appears that as far as growth stocks are concerned, we are only sure about their uncertai...