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Tax progressivity and the Pareto tail of income distributions

Author

Listed:
  • Yang, C.C.
  • Zhao, Xueya
  • Zhu, Shenghao

Abstract

In a continuous-time version of the Bewley–Huggett–Aiyagari model, this paper shows theoretically and numerically that the fatness of the Pareto upper tail of the income distribution depends on tax progressivity only through the general equilibrium effect on the interest rate. With confiscatory taxes (marginal income tax rate approaching 100% at the top), the Pareto exponent is independent of tax progressivity.

Suggested Citation

  • Yang, C.C. & Zhao, Xueya & Zhu, Shenghao, 2023. "Tax progressivity and the Pareto tail of income distributions," Economics Letters, Elsevier, vol. 231(C).
    • Handle: RePEc:eee:ecolet:v:231:y:2023:i:c:s0165176523002987
    DOI: 10.1016/j.econlet.2023.111273
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax progressivity; Pareto tail; Bewley–Huggett–Aiyagari model;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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