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Optimal Taxation and Investment-Specific Technological Change

Author

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  • Valter Nóbrega

    (Nova School of Business and Economics)

Abstract

In this paper, we look at the relationship between Investment Specific Technological Change (ISTC) and optimal level of labor income progressivity. We develop an incomplete markets overlapping generations model that matches relevant features of the US economy and find that the observed drop in the relative price of investment since the 1980’s leads optimal progressivity to increase. This result hinges on ISTC increasing the wage premium through an increase in the variance of the permanent component of labor income. This result is supported by recent findings in the literature that highlight the increasing role of the permanent component of labor income in the observed increase in income inequality.

Suggested Citation

  • Valter Nóbrega, 2020. "Optimal Taxation and Investment-Specific Technological Change," Notas Económicas, Faculty of Economics, University of Coimbra, issue 51, pages 167-185, December.
    • Handle: RePEc:gmf:journl:y:2020:i:51:p:167:185
    DOI: 10.14195/2183-203X_51_8
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    Cited by:

    1. De Dominicis, Piero, 2020. "Routinization and Covid-19: a comparison between United States and Portugal," MPRA Paper 101003, University Library of Munich, Germany.

    More about this item

    Keywords

    Optimal taxation; technological change; income inequality.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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