An important feature of the increased share is that it is mostly attributable to higher employment and business income, not capital income, and reflects such factors as the incentive effects of cuts in (top) marginal tax rates and the fact that the remuneration of top executives and finance professionals has become increasingly related to ‘performance’, particularly through the use of stock and stock options.
The policy implications of these trends depend in part on income mobility; and the limited data available suggest that there is significant mobility and that its scale has decreased only slightly over time. They also depend on the likely behavioural response to increased taxation of top incomes, where the empirical literature suggests that taxable income elasticities in some countries can be large. The paper considers the pros and cons of possible reforms in the light of such evidence.