Redesigning tax systems for fairness and growth
Aug 2025
Enabling world-class research
Florian Scheuer explores how taxation of top earners and capital gains affects economic inequality. He highlights why fair tax policies are crucial to reducing the growing divide between the rich and the poor, while fostering economic growth.
Pressing challenges to address
- How do top earners impact the economy and inequality?
- How to optimally tax capital gains and wealth?
- How to design fair and efficient tax systems?
The key unresolved challenge: taxing the rich fairly
The public debate about taxing the rich remains contentious, driven by starkly differing views on whether top earners are beneficial or detrimental to the broader economy. Some argue that highincome earners create positive externalities – through job creation, productivity spillovers, and innovation – that ultimately benefit lower-income groups. Others contend that they generate negative externalities, such as rent-seeking, political influence, and fostering economic inequality.
While research has made progress in understanding the theoretical implications of these factors for tax design, a key challenge remains: How do we empirically measure these externalities? The difficulty in quantifying these effects has made it challenging to operationalize more realistic and effective tax policies.
New empirical research, leveraging administrative data from the U. S. and Scandinavian countries, has started to shed light on these dynamics. For instance, studies have estimated the impact of entrepreneurs leaving a country on firms, workers, wages, and prices. Initial findings suggest that top earners have positive externalities on net. However, understanding the precise mechanisms behind these effects – such as their impact across different industries or job types – remains a crucial area for further research.
Shifting focus: from labor markets to capital and wealth taxation
In recent years, my research focus has shifted from labor markets to the taxation of capital and wealth, particularly at the top of the income distribution. This shift was motivated by public debates on wealth taxation and capital gains tax reform in several countries, including the U. S., as well as the increasing share of capital income among the superrich.
Capital gains, in particular, play a central role in wealth accumulation and inequality. Movements in asset prices significantly shape wealth disparities, and the relatively favorable tax treatment of capital gains in many countries has spurred discussions on reform. Policy proposals range from wealth taxes and taxing unrealized gains to eliminating tax exemptions at death. However, there is little consensus on which of these tools, if any, is most effective.
One reason for this uncertainty is that existing research on optimal capital taxation relies on simplified models that fail to capture the complexities of realworld capital markets. My research, supported by an SNF Consolidator Grant, aims to develop better tools for designing tax policies targeted at capital gains. By incorporating insights from asset pricing, corporate finance, and macroeconomics, we can better understand how tax policies shape incentives for investment, entrepreneurship, and economic growth.
For instance, one of my recent projects examines the origins and distribution of capital gains among business founders. By analyzing data on venture capital funding rounds, valuations, and ownership structures in U. S. startups, we can assess how taxation affects entrepreneurial incentives. Given the high-risk nature of startup success, understanding how tax policy influences these dynamics is crucial for fostering innovation while ensuring fair taxation.
The rise of economic inequality and its policy implications
My research has been driven by a broader motivation: understanding the policy implications of rising economic inequality. Over the past few decades, many advanced economies have seen a dramatic increase in income and wealth disparities.
When I was a graduate student at MIT during the 2008 financial crisis, it became clear that there can be a disconnect between individual earnings and societal contributions. Some highly compensated individuals generated little value beyond personal gain, exposing gaps in how our tax systems account for economic externalities. Existing models of optimal taxation did not fully capture these dynamics, prompting me and fellow researchers to explore more nuanced approaches.
One key question has been how taxation should account for winner-take-all markets, where individual success can diminish opportunities for others. My early work explored how income taxes should be designed in environments where excessive competition can reduce overall social welfare, such as high-frequency trading or certain executive compensation structures. At the same time, not all top earners are overcompensated relative to their societal contributions. Entrepreneurs, for instance, may generate far more value for society than what they personally capture in earnings. These nuances matter for tax design: policies must be carefully structured to curb excessive inequality without stifling productivity and innovation.
The role of the UBS Center: shaping economic research and policy
The UBS Center has been instrumental in the success and growth of the Department of Economics at the University of Zurich. Its support has allowed us to attract world-class scholars, expand research capacity, and compete with top institutions worldwide. As department chair, I have seen firsthand how the UBS Center’s funding has enabled critical hiring efforts.
However, the Center’s contributions go beyond financial support – it has helped us build a thriving research community, fostering intellectual exchange and collaboration. Additionally, the UBS Center has played a key role in bridging academic research and public policy. Through events such as the Wirtschaftspodium and the Forum for Economic Dialogue, as well as initiatives like policy briefs and public papers, the Center has ensured that economic research informs real-world decision-making.
Personally, my involvement in UBS Center activities has allowed me to engage with policymakers, business leaders, and journalists, bringing evidence-based perspectives to the tax policy debate. By providing a platform for dialogue, the Center has strengthened the connection between academic insights and policy implementation. The continued work of the UBS Center remains critical in addressing key economic challenges, ensuring that research does not remain in academia but actively shapes policies that foster prosperity and fairness in society.
Florian Scheuer explores how taxation of top earners and capital gains affects economic inequality. He highlights why fair tax policies are crucial to reducing the growing divide between the rich and the poor, while fostering economic growth.
Pressing challenges to address
- How do top earners impact the economy and inequality?
- How to optimally tax capital gains and wealth?
- How to design fair and efficient tax systems?
The key unresolved challenge: taxing the rich fairly
The public debate about taxing the rich remains contentious, driven by starkly differing views on whether top earners are beneficial or detrimental to the broader economy. Some argue that highincome earners create positive externalities – through job creation, productivity spillovers, and innovation – that ultimately benefit lower-income groups. Others contend that they generate negative externalities, such as rent-seeking, political influence, and fostering economic inequality.
While research has made progress in understanding the theoretical implications of these factors for tax design, a key challenge remains: How do we empirically measure these externalities? The difficulty in quantifying these effects has made it challenging to operationalize more realistic and effective tax policies.
Florian Scheuer is the UBS Foundation Professor of Economics of Institutions in the Department of Economics at the University of Zurich.
Quotes
The public debate about taxing the rich remains contentious because there is still an enormous disparity in views about whether top earners are good or bad for the economy.
Economic challenges of our time
From rising inequality and global trade tensions to climate change and the impact of artificial intelligence on labor markets – economists today are grappling with fundamental questions that will shape our collective future. In this special edition of the Public Paper series, all affiliated professors of the UBS Center share their perspectives on these challenges. Their contributions highlight how cutting-edge research conducted at the Department of Economics at the University of Zurich can help us better understand – and potentially solve – some of the most urgent issues of our time.
It is precisely this ambition that defines the UBS Center for Economics in Society. Since its founding, the Center has served as a platform for dialogue between academia, business, and policymakers and as a catalyst for excellence in economic research. That vision goes back to Kaspar Villiger. As the founding Chairman of the Foundation Council, he played a pivotal role in establishing and shaping the UBS Center.
With this fifteenth edition of the Public Paper series, we honor Kaspar Villiger’s extraordinary contributions and legacy. By strengthening research capacity at the University of Zurich and fostering public dialogue around key societal questions, his vision continues to inspire the Center’s mission: bridging knowledge and society to build a better future.
From rising inequality and global trade tensions to climate change and the impact of artificial intelligence on labor markets – economists today are grappling with fundamental questions that will shape our collective future. In this special edition of the Public Paper series, all affiliated professors of the UBS Center share their perspectives on these challenges. Their contributions highlight how cutting-edge research conducted at the Department of Economics at the University of Zurich can help us better understand – and potentially solve – some of the most urgent issues of our time.
It is precisely this ambition that defines the UBS Center for Economics in Society. Since its founding, the Center has served as a platform for dialogue between academia, business, and policymakers and as a catalyst for excellence in economic research. That vision goes back to Kaspar Villiger. As the founding Chairman of the Foundation Council, he played a pivotal role in establishing and shaping the UBS Center.
Florian Scheuer on Google Scholarbrowse
Taxing the superrich
Author
UBS Foundation Professor of Economics of Institutions, Research Fellow CEPR
Florian Scheuer received his PhD from MIT in 2010. He is interested in the policy implications of rising inequality, with a focus on tax policy. In particular, he has worked on incorporating important features of real-world labor markets into the design of optimal income and wealth taxes. These include economies with rent-seeking, superstar effects or an important entrepreneurial sector, frictional financial markets, as well as political constraints on tax policy and the resulting inequality. His work has been published in the American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics and the Review of Economic Studies, among other journals. In 2017, he received an ERC starting grant for his research on “Inequality - Public Policy and Political Economy.” Before joining Zurich, he was on the faculty at Stanford, held visiting positions at Harvard and UC Berkeley and was a National Fellow at the Hoover Institution. He is Co-Editor of Theoretical Economics and Member of the Board of Editors of the Review of Economic Studies. He is also a Co-Director of the working group on Macro Public Finance at the NBER. He has commented on tax policy in various US and Swiss media outlets.
UBS Foundation Professor of Economics of Institutions, Research Fellow CEPR
Florian Scheuer received his PhD from MIT in 2010. He is interested in the policy implications of rising inequality, with a focus on tax policy. In particular, he has worked on incorporating important features of real-world labor markets into the design of optimal income and wealth taxes. These include economies with rent-seeking, superstar effects or an important entrepreneurial sector, frictional financial markets, as well as political constraints on tax policy and the resulting inequality. His work has been published in the American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics and the Review of Economic Studies, among other journals. In 2017, he received an ERC starting grant for his research on “Inequality - Public Policy and Political Economy.” Before joining Zurich, he was on the faculty at Stanford, held visiting positions at Harvard and UC Berkeley and was a National Fellow at the Hoover Institution. He is Co-Editor of Theoretical Economics and Member of the Board of Editors of the Review of Economic Studies. He is also a Co-Director of the working group on Macro Public Finance at the NBER. He has commented on tax policy in various US and Swiss media outlets.