Incentives, globalization, and redistribution

We offer a new explanation for why taxes have become less redistributive in many countries while the concentration of incomes has increased. Our argument is based on prevalence incentive contracts modern economies, conjunction with increased product market integration. Globalization widens spread project returns and makes contract choices more responsive to tax changes. This can result lower optimal income rate simultaneously increasing share top earners. These results are confirmed calibrated version our model U.S. data.