IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Heterogeneous Labor Skills, The Median Voter and Labor Taxes

  • Facundo Piguillem


  • Anderson Schneider

    (Infinium Capital Management)

This paper analyzes the median voter's most preferred sequences of labor taxes in the standard neoclassical growth model. We consider an infinite horizon economy in which agents are heterogeneous with respect to both initial wealth and labor skills. We start by providing a set of sufficient conditions for the existence of a Condorcet Winner. We then characterize the most preferred tax sequence by the median agent. First, we show that marginal labor taxes depend directly on the absolute value of the distance between the median and the mean value of the skills' distribution. Second, we find that in contrast to the intuition stemming from standard representative agent economies, labor taxes are more volatile and counter-cyclical taxation (e.g., increasing taxes in recession) might be optimal depending on the correlation between inequality and TFP. To assess the quantitative relevance of these findings, we calibrate the model economy to six countries and find that countercyclical labor taxation is optimal for all but the US. (Copyright: Elsevier)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 16 (2013)
Issue (Month): 2 (April)
Pages: 332-349

in new window

Handle: RePEc:red:issued:11-142
Contact details of provider: Postal:
Marina Azzimonti, Department of Economics, Stonybrook University, 10 Nicolls Road, Stonybrook NY 11790 USA

Web page:

More information through EDIRC

Order Information: Web: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Marina Azzimonti & Eva de Francisco & Per Krusell, 2006. "Median-voter Equilibria in the Neoclassical Growth Model under Aggregation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 587-606, December.
  2. Per Krusell & Jose-Victor Rios-Rull, 1997. "On the size of U.S. government: political economy in the neoclassical growth model," Staff Report 234, Federal Reserve Bank of Minneapolis.
  3. Zvi Eckstein & Éva Nagypál, 2004. "The evolution of U.S. earnings inequality: 1961?2002," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Dec, pages 10-29.
  4. Marco Bassetto & Jess Benhabib, 2006. "Redistribution, Taxes, and the Median Voter," 2006 Meeting Papers 78, Society for Economic Dynamics.
  5. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal we stand: an empirical analysis of economic inequality in the United States, 1967-2006," Staff Report 436, Federal Reserve Bank of Minneapolis.
  6. B. D. Bernheim & S. N. Slavov, 2009. "A Solution Concept for Majority Rule in Dynamic Settings," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 33-62.
  7. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  8. V. V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report 122, Federal Reserve Bank of Minneapolis.
  9. V. V. Chari & Patrick J. Kehoe, 1999. "Optimal Fiscal and Monetary Policy," NBER Working Papers 6891, National Bureau of Economic Research, Inc.
  10. Dean Corbae, 2007. "Politico-Economic Consequences of Rising Wage Inequality," 2007 Meeting Papers 129, Society for Economic Dynamics.
  11. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2008. "The Macroeconomic Implications of Rising Wage Inequality in the United States," NBER Working Papers 14052, National Bureau of Economic Research, Inc.
  12. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  13. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, 09.
  14. Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.
  15. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimal fiscal policy in a business cycle model," Staff Report 160, Federal Reserve Bank of Minneapolis.
  16. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
  17. Fatih Guvenen & Serdar Ozkan & Jae Song, 2013. "The nature of countercyclical income risk," Finance and Economics Discussion Series 2013-25, Board of Governors of the Federal Reserve System (U.S.).
  18. Albert Marcet & Morten O. Ravn, 2001. "The HP-filter in cross-country comparisons," Economics Working Papers 588, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2003.
  19. Dirk Niepelt, 2004. "Tax Smoothing versus Tax Shifting," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 27-51, January.
  20. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  21. Christopher Phelan & Ennio Stacchetti, 1999. "Sequential equilibria in a Ramsey tax model," Staff Report 258, Federal Reserve Bank of Minneapolis.
  22. Jess Benhabib & Adam Przeworski, 2006. "The political economy of redistribution under democracy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 271-290, October.
  23. Ruediger Bachmann & Jinhui Bai, 2011. "Public Consumption Over the Business Cycle," NBER Working Papers 17230, National Bureau of Economic Research, Inc.
  24. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  25. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  26. Iván Werning, 2007. "Optimal Fiscal Policy with Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 925-967.
  27. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  28. Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, vol. 69(3), pages 575-98, May.
  29. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  30. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  31. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
  32. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
  33. Marina Azzimonti & Eva de Francisco & Per Krusell, 2008. "Aggregation and Aggregation," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 381-394, 04-05.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:issued:11-142. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.