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Negative income taxes, inequality and poverty

Author

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  • Constantine Angyridis
  • Brennan Scott Thompson

Abstract

We use a neoclassical growth model with heterogeneous agents to analyze the redistributive effects of a negative income tax system, which combines a flat rate tax with a fully refundable credit (demogrant). 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 inequality as well as both relative and absolute poverty (all measured in terms of post-tax total income). However, these reductions in inequality and poverty come at the expense of a significant reduction in output.

Suggested Citation

  • Constantine Angyridis & Brennan Scott Thompson, 2016. "Negative income taxes, inequality and poverty," Canadian Journal of Economics, Canadian Economics Association, vol. 49(3), pages 1016-1034, August.
    • Handle: RePEc:cje:issued:v:49:y:2016:i:3:p:1016-1034
    DOI: 10.1111/caje.12223
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    Cited by:

    1. Ireen Choga & Fiyinfoluwa Giwa, 2023. "The Effect of Property Tax on Income Redistribution in Selected African Countries," Sustainability, MDPI, vol. 15(7), pages 1-15, March.

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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