A Dynamic Model of Redistribution, Inheritance, and Inequality
Comparing steady states of an overlapping-generations economy, Gary S. Becker and Nigel Tomes (1979) and James B. Davies (1986) have noted that redistributive taxation can be disequalizing. This paper solves for the full transition path of inequality after a redistributive tax increase. The authors find, in contrast to the steady-state results, that redistribution "works' in the first generation under quite general conditions, even when fully anticipated by all previous generations. Further, inequality is likely to fall for several generations before approaching its new steady-state level from below.
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Volume (Year): 24 (1991)
Issue (Month): 2 (May)
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