{"id":61185,"date":"2026-07-28T01:00:24","date_gmt":"2026-07-28T05:00:24","guid":{"rendered":"https:\/\/quotulatiousness.ca\/blog\/?p=61185"},"modified":"2026-07-27T10:23:55","modified_gmt":"2026-07-27T14:23:55","slug":"qotd-projecting-the-effect-of-a-maximum-wage-law","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2026\/07\/28\/qotd-projecting-the-effect-of-a-maximum-wage-law\/","title":{"rendered":"QotD: Projecting the effect of a maximum<\/em> wage law"},"content":{"rendered":"

\"\"<\/a>What would be the impact of such a policy?<\/p>\n

We cannot know exactly, because we would struggle to find a real-world example of it in a comparable country. But we could think of it as, effectively, a 100% marginal tax rate on incomes above \u00a3100,000. We could then look at the empirical literature on how responsive top earners are to tax incentives, and extrapolate from that.<\/p>\n

We know from previous studies that the behaviour of top earners is quite sensitive to tax changes. Last year, the Institute for Fiscal Studies (IFS) tried to model the impact of a proposal to increase the tax burden on the top 5% of earners. In this case, the proposal was to lower the threshold for the 45% additional rate of income tax from \u00a3150,000 to \u00a380,000 per annum, and to introduce an “additional additional rate” of 50% for incomes above \u00a3125,000.<\/p>\n

If nobody changed their behaviour, such a policy would increase tax revenue by just over \u00a39 billion per annum<\/em>. But people would, of course, change their behaviour. Some top earners would switch to less demanding positions, some would retire earlier, some would reduce working hours, some would engage in more proactive tax planning (i.e. legal tax avoidance), some would simply emigrate, and so on.<\/p>\n

We know for certain that responses of that kind exist. But we cannot exactly quantify them. So the IFS came up with a range of plausible outcomes rather than one definite number. It turns out that at the most optimistic end of the spectrum, behavioural changes would still knock over a third off the potential additional tax revenue, reducing it from over \u00a39 billion to under \u00a36 billion. At the most pessimistic end of the spectrum, the policy would fail to raise any<\/em> additional tax revenue \u2013 it would, in fact, reduce<\/em> revenue by almost \u00a31 billion. (Stop smirking, Dr Laffer.)<\/p>\n

If a tax rate of 50% can be predicted to trigger such strong behavioural responses, you can guess how much damage an implicit rate of 100% would do.<\/p>\n

Kristian Niemietz, “The public love it, so what\u2019s wrong with the idea of a maximum wage?”, Institute of Economic Affairs<\/em><\/a>, 2020-10-14.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

What would be the impact of such a policy? We cannot know exactly, because we would struggle to find a real-world example of it in a comparable country. But we could think of it as, effectively, a 100% marginal tax rate on incomes above \u00a3100,000. We could then look at the empirical literature on how […]<\/p>\n","protected":false},"author":1,"featured_media":35193,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[4,25,84,41],"tags":[755,95,1026,118],"class_list":["post-61185","post","type-post","status-publish","format-standard","hentry","category-britain","category-economics","category-government","category-quotations","tag-incentives","tag-jobs","tag-microeconomics","tag-taxes"],"jetpack_featured_media_url":"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2016\/06\/favicon.png","jetpack_shortlink":"https:\/\/wp.me\/p2hpV6-fUR","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/61185","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/comments?post=61185"}],"version-history":[{"count":4,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/61185\/revisions"}],"predecessor-version":[{"id":103896,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/61185\/revisions\/103896"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media\/35193"}],"wp:attachment":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media?parent=61185"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/categories?post=61185"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/tags?post=61185"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}