I've been doing some reading on taxation as well as starting Hacker and Pierson's Winner Take All Politics. This has been making me do a bit more thinking about the interaction of the distribution of taxation and economic growth.
The question I have is whether someone knows about a book or paper that looks at the incidence of taxation by income and its effects on economic growth? Based on my historical reading, I tend towards the belief that economic growth is primarily the result of the actions of the top quartile of income distribution (the lower part of the distribution is important, but social and economic policies other than taxation are more important here).
However, I don't see the top 1% contributing in the same way, historically the activities of the very top of the distribution seem to be more about distributing the pie than they are about creating growth. For the individual, more gains can be had by acquiring new businesses (or land or other limited resources) than can be had by actually growing a business. I see this as a tendency rather than a rule, some wealthy individuals will certainly act as angel investors or take on high risk projects, given the small sample size there is undoubtedly a great deal of individual variation.
The reasoning behind this is simple. I don't buy Schumpeter's notion that entrepreneurs are motivated by the existence of the outsize gains of a Carnegie or Gates for their risk-taking. Rather, I think they are more concerned with the outsize returns possible relative to being a simple employee, being a restaurant owner has a lot more potential for upside than being the restaurant's cook. At the very highest levels I see this as breaking down, if someone is already very wealthy their potential downside is too big to be taking big risks on the outside chance of rivaling Carnegie and J.P. Morgan. The real thirst for gain, and thus for entrepreneurship is among those a couple rungs below this.
Some other thoughts making me think along these lines is that studies that look at taxes and growth tend to have mixed results when looking only at Europe and some sensitivity to time periods chosen. The strong taxes and growth link seems to be at least partially the result of the different economic and political structures of the anglo-saxon countries relative to the rest of Europe, Japan has very low taxes and low growth as well giving at least one case with experience contrary to that of the anglo-saxon nations. Something that stands out among the anglo-saxon countries is that we also have a very high rate of entrepreneurship relative to Europe, perhaps this, as well as other factors also correlated to lower taxes, is a bigger part of the explanation than the factors normally studied by economists.
All this is leading me to wonder if the low tax advantage has to do with promoting the fortunes of particular parts of the income distribution and little to do with taxes overall. The very low growth experienced by the US in the last decade and the tax cuts slanted towards the very upper end of the income distribution makes me think that this part of the distribution might not have much to do with growth. In my story, growth would be the result of the assets and access to credit among the well off and not the wealthy who aspire to rise higher. Taxing those who have already made it heavily would have little impact on growth, if this story is correct (at this point the speculation to data ratio is rather high). I'd like to find a paper or book examining this question in greater detail and would appreciate if someone can point me in that direction.