Negative Income Taxes, Inequality, and Poverty
AbstractWe use the heterogeneous agents model of Aiyagari and McGrattan (1998) to analyze the redistributive effects of a negative income tax policy, which combines a flat rate tax with a fully refundable credit ("demogrant"). This issue has been previously considered in the context of static partial equilibrium models. We show that changing the demogrant-to-output ratio causes significant changes in the distribution of income. Specifically, we find that increasing the demogrant-to-output ratio sharply reduces the level of both inequality and relative poverty in terms of post-tax total income.
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Bibliographic InfoPaper provided by Ryerson University, Department of Economics in its series Working Papers with number 034.
Length: 28 pages
Date of creation: Aug 2012
Date of revision: Nov 2012
negative income taxe; flat tax; inequality; Lorenz dominance; relative poverty; heterogeneous agents;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-09 (All new papers)
- NEP-LTV-2012-09-09 (Unemployment, Inequality & Poverty)
- NEP-PBE-2012-09-09 (Public Economics)
- NEP-PUB-2012-09-09 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brennan Thompson, 2012. "Flat rate taxes and relative poverty measurement," Social Choice and Welfare, Springer, vol. 38(3), pages 543-551, March.
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