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RESEARCH PAPER
Optimal Labour Income Taxation in Poland: The Case of High-Income Earners
1
University of Michigan, Ann Arbor, MI, United States
2
Schools Complex in Bychawa, Poland
3
SGH Warsaw School of Economics, Poland
Submission date: 2022-03-06
Final revision date: 2022-09-12
Acceptance date: 2023-01-04
Publication date: 2023-03-31
GNPJE 2023;313(1):41-65
KEYWORDS
JEL CLASSIFICATION CODES
ABSTRACT
In this paper, we use actual data provided by the Polish tax authority and characterise the properties of income distribution in Poland in the case of high-income earners. By employing a variety of techniques we are able to confirm that the distribution of income in Poland can be approximated with a Pareto distribution in its upper tail. This finding makes the formula for the optimal marginal tax rates of Saez [2001] applicable to the Polish case and allows us to provide estimates of the optimal marginal tax rates for Poland. We show that the current tax policy in Poland is not optimal. Specifically, we show, by relying on empirically viable estimates of the elasticity of the labour supply with respect to the wage, that the optimal marginal tax rate at high income levels exceeds 60%. In other words, we suggest that there is room for a welfare-improving reform in Poland, and we argue that high-income individuals should be expected to contribute substantially more at the margin than they currently do.
FUNDING
The results presented in this paper were obtained as a part of a research project generously funded by Poland’s National Science Center: Grant #UMO-2016/21/B/HS4/03055. We would like to express our deepest gratitude to the National Science Center for its funding, which made the completion of our research on optimal labour income taxation possible.
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