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Heterogeneity and Government revenues: Higher taxes at the top?

Listed author(s):
  • Guner, Nezih
  • Lopez-Daneri, Martin
  • Ventura, Gustavo

How effective is a more progressive tax scheme in raising revenues? We answer this question in a life-cycle economy with heterogeneity across households and endogenous labor supply. Our findings show that a tilt of the U.S. income tax schedule towards high earners leads to small increases in revenue. Maximal revenue in the long run is only 6.8% higher than in our benchmark – about 0.8% of initial GDP – while revenues from all sources increase by just about 0.6%. Our conclusions are that policy recommendations of this sort are misguided if the aim is to exclusively raise government revenue.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304393216300307
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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 80 (2016)
Issue (Month): C ()
Pages: 69-85

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Handle: RePEc:eee:moneco:v:80:y:2016:i:c:p:69-85
DOI: 10.1016/j.jmoneco.2016.05.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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