Progressive Taxation, Wealth Distribution, and Macroeconomic Stability
AbstractUsing the standard neoclassical growth model with two types of agents, we examine how the presence of heterogenous agents affects the stabilization role of progressive income taxation. We first show that if the marginal tax payment of each agent increases with her relative income, the steady state satisfies local saddlepoint stability so that the equilibrium is determinate. However, unlike the representative agent models with progressive taxation, our model with heterogeneous agents may have the possibility of equilibrium indeterminacy. The indeterminacy conditions depend not only on the property of tax functions but also on production and preference structures.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 08-22.
Length: 30 pages
Date of creation: May 2008
Date of revision:
heterogeneous agents; progressive taxation; wealth distribution; aggregate stability;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-21 (All new papers)
- NEP-DGE-2008-06-21 (Dynamic General Equilibrium)
- NEP-MAC-2008-06-21 (Macroeconomics)
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