Question
In 'Arguing with Zombies: Economics, Politics, and the Fight for a Better Future', Paul Krugman presents several surprising insights. One of them is the concept of 'Zombie ideas', which are ideas that refuse to die despite evidence disproving them. He also discusses the optimal tax rate, which according to experts like Peter Diamond and Emmanuel Saez, is estimated to be 73%. This rate is based on the Diminishing Marginal Utility, suggesting that a dollar is worth less to those with very high incomes compared to those with lower incomes. Therefore, a policy that makes the rich a bit poorer will impact very few people and will barely affect their life satisfaction.
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Experts like Nobel Prize in Economic Sciences Laureate Peter Diamond, in collaboration with Emmanuel Saez, have estimated the optimal tax rate to be 73%. These rates are based on Diminishing Marginal Utility, the idea that a dollar is worth less to those with very high incomes compared to those with far lower incomes. Therefore, a policy that makes the rich a bit poorer will impact very few people and will barely affect their life satisfaction. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue while still preserving the incentive to generate wealth.
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