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Markups, Taxes, and Rising Inequality

Author

Listed:
  • Stéphane Auray

    (CREST-ENSAI, Bruz, France)

  • Aurélien Eyquem

    (University of Lausanne, Switzerland)

  • Bertrand Garbinti

    (CREST-ENSAE-Institut Polytechnique Paris, France)

  • Jonathan Goupille-Lebret

    (Univ Lyon, CNRS Ecully and ENS de Lyon, France)

Abstract

How to explain rising income and wealth inequality? We build an original heterogeneousagent model with three key features: (i) an explicit link between firm’s market power and top income shares, (ii) a granular representation of the tax and transfer system, and (iii) three assets with endogenous portfolio decisions. Using France as an illustration, we look at how changes in markups, taxes, factor productivity, and asset prices affect inequality dynamics over the 1984-2018 period. Rising markups account for the bulk of rising income inequality. Wealth inequality dynamics result mostly from changes in saving rate inequality but only in response to the exogenous changes in taxation and markups. Our results point to the critical importance of endogenous saving decisions in response to exogenous shocks as a key driver of wealth inequality.

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem & Bertrand Garbinti & Jonathan Goupille-Lebret, 2022. "Markups, Taxes, and Rising Inequality," Working Papers 2022-18, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2022-18
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    References listed on IDEAS

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    More about this item

    Keywords

    Heterogeneous Agents; Taxes; Market Power; Income Inequality; Wealth Inequality.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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