ABSTRACT
Raising tax revenue provides a direct link with policies to help combat poverty and social exclusion. This chapter examines the sources of top incomes and the new issues that are raised for the design of taxation. In the case of earned income, it is good to see economic theory used to analyse tax policy, drawing on the optimum tax literature. There is a tendency to identify the rich with a particular percentage of the population, like the top 1 per cent. A different approach, is to define the rich as those whose income is above a cut-off. First of all, there is considerable uncertainty surrounding the estimate of the taxable elasticity. In the case of capital income, people differ in the extent to which they inherit wealth at some point in their lives. This is a second dimension along which people's endowments vary, a second dimension along which there is initial inequality.
