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Taxation and Income Distribution Dynamics in a Neoclassical Growth Model

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  • Cecilia Garcìa-Peñalosa

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

  • Stephen J. Turnovsky

    (University of Washington - University of Washington)

Abstract

We examine how changes in tax policies affect the dynamics of the distributions of wealth and income in a Ramsey model in which agents differ in their initial capital endowment. The endogeneity of the labor supply plays a crucial role in determining inequality, as tax changes that affect hours of work will affect the distribution of wealth and income, reinforcing or offsetting the direct redistributive impact of taxes. Our results indicate that tax policies that reduce the labor supply are associated with lower output but also with a more equal distribution of after-tax income. We illustrate these effects by examining the impact of recent tax changes observed in the US and in European economies.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00341001.

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Date of creation: 24 Nov 2008
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Handle: RePEc:hal:wpaper:halshs-00341001

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Related research

Keywords: taxation; wealth distribution; income distribution; endogenous labor supply; transitional dynamics;

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Cited by:
  1. Cecilia Garcia-Peñalosa & Stephen Turnovsky, 2013. "Income Inequality, Mobility and the Accumulation of Capital," CESifo Working Paper Series 4559, CESifo Group Munich.
  2. Cecilia García-Peñalosa & Stephen J. Turnovsky, 2012. "Income Inequality, Mobility, and the Accumulation of Capital: The Role of Heterogeneous Labor Productivity," Working Papers halshs-00793209, HAL.
  3. Chatterjee, Santanu & Turnovsky, Stephen J., 2012. "Infrastructure and inequality," European Economic Review, Elsevier, vol. 56(8), pages 1730-1745.
  4. Marcel Aloy & Gilles De Truchis, 2012. "Estimation and Testing for Fractional Cointegration," Working Papers halshs-00793206, HAL.
  5. Heshmati, Almas & Kim, Jungsuk, 2014. "A Survey of the Role of Fiscal Policy in Addressing Income Inequality, Poverty Reduction and Inclusive Growth," IZA Discussion Papers 8119, Institute for the Study of Labor (IZA).

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