I enjoy reading Greg Mankiw’s blog, because he does a pretty good job of explaining an opinion that I usually don’t share, thus always giving me something to think about …

He does the same in a recent article in the NYTimes, contributing on the debate whether the Bush tax cuts for the rich should be extended, or whether these taxes should even be increased, as Obama’s administration seems to be planning.

Mankiw argues that taken all taxes and deductions into account, taxation on money he would be earning to pass on to his children 30 years from now is about 90%. And while nonchalantly agreeing that he can bear that burden, he claims that his incentive to work is seriously impaired by that. Which we should care about, because his (and other high earners‘) work could be very valuable to all of us (like, only twisting his own example a little bit, writing articles propagating higher income for himself and his friends…).

Seriously, as usually, he has a point. I think my reply would centre around my assumption that especially high earning people are doing something they like doing, for intrinsic reasons. Maybe I would point to research showing that Mankiw’s differing self-perception might be a result of the very theories he has been learning and teaching (e.g. this or this), thus not being representative of the population of rich people in general. He does point to research showing that rich people respond particularly strongly to incentives, but what I read there seems to be rather contradicting that claim (at least in the sense that he is implying — responding by working more or less):

For lower income groups, labor income accounts for most of their income. Since labor income tax is withheld, the only way to manipulate income is to work more, or less. For higher income groups, capital income is more important, and this is more readily manipulated for tax purposes through asset allocation decisions. The researchers show that taxpayers with itemized returns have particularly high elasticity.

Just some starting points for thoughts here

I just read the „Popular Information“ about this year’s Nobel Prize Winners in Economics and don’t quite know whether I’m shocked or happy. It’s good stuff like that is being discovered. How very sad that it took till the 70s for this to catch on. Here’s the basic discovery:

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