Taxes and Rents: The Power of Tax Policy to Shape Pre-Tax Income
Argues that tax policy shapes the pre-tax distribution of income by enabling or constraining rent extraction — not merely redistributing after the fact.
Summary
This 2019 paper challenges the standard view that taxation only redistributes income after it is earned. It argues that tax policy actively shapes the pre-tax distribution by determining how much rent extraction is profitable in the first place.
Key Argument
When tax systems leave economic rents — including land rent — lightly taxed, they make rent-seeking more lucrative than productive activity, drawing talent and capital toward extraction. Taxing rents (as with a land value tax) reduces the payoff to rent-seeking and shifts the pre-tax distribution toward earned income. Tax policy is thus a cause of inequality, not just a response to it.
Bears On
- Concept: Rent-Seeking
Sources
- Richards (2019), "Taxes and Rents: The Power of Tax Policy to Shape Pre-Tax Income," SSRN. Paper