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Does a global wealth tax reduce inequality? When Piketty meets Mankiw

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  • Nguyen, Tien Van
  • Khieu, Hoang

Abstract

We investigate the effects of a wealth tax on consumption and wealth inequality in a standard small open economy model featuring labour income heterogeneity. We show that consumption inequality and wealth inequality are identical in the long run if consumption growth exceeds output growth. Under this condition, the wealth tax reduces long run inequality under two additional conditions. First, the difference between the rate of return on wealth and the growth rate, r−g, is higher than a positive threshold. Second, the tax rate is lower than a cap which rises in r−g but decreases in labour income heterogeneity.

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  • Nguyen, Tien Van & Khieu, Hoang, 2020. "Does a global wealth tax reduce inequality? When Piketty meets Mankiw," Research in Economics, Elsevier, vol. 74(2), pages 119-130.
    • Handle: RePEc:eee:reecon:v:74:y:2020:i:2:p:119-130
    DOI: 10.1016/j.rie.2020.02.004
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    References listed on IDEAS

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    Cited by:

    1. Khieu, Hoang & Van Nguyen, Tien, 2020. "Progressive consumption tax, minimum consumption, and inequality," Economics Letters, Elsevier, vol. 197(C).
    2. Nguyen, Hien Phuc & Khieu, Hoang, 2021. "Progressive wealth tax: An inquiry into Biden’s tax policy," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 735-742.

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    More about this item

    Keywords

    Wealth inequality; Consumption inequality; Wealth tax; r-g;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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