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Marginal Tax Rates and Income Inequality in a Life-Cycle Model

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  • Charles T. Carlstrom
  • David Altig

Abstract

In this paper we study the quantitative impact of marginal tax rates on the distribution of income. Our methodology builds on computable general-equilibrium framework. We find that distortions from marginal tax rate changes of the sort implied by the Tax Reform Act of 1986 have sizable effects on income inequality in a reasonably quantified life-cycle setting: In our model rate changes alone capture half the increase in the pretax Gini that actually occurred between 1984 and 1989.

Suggested Citation

  • Charles T. Carlstrom & David Altig, 1999. "Marginal Tax Rates and Income Inequality in a Life-Cycle Model," American Economic Review, American Economic Association, vol. 89(5), pages 1197-1215, December.
    • Handle: RePEc:aea:aecrev:v:89:y:1999:i:5:p:1197-1215
    Note: DOI: 10.1257/aer.89.5.1197
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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