Optimal taxation and the skill premium
The stylized facts suggest a negative relationship between tax progressivity and the skill premium from the early 1960s until the early 1990s, and a positive one thereafter. They also generally imply rising tax progressivity, except for the 1980s. In this paper, we ask whether optimal tax policy is consistent with these observations, taking into account the demographic and technological factors that have also affected the skill premium. To this end, we construct a dynamic general equilibrium model in which the skill premium and the progressivity of the tax system are endogenously determined, with the latter being optimally chosen by a benevolent government. We find that optimal policy delivers both a progressive tax system and model predictions which are generally consistent, except for the 1980s, with the stylized facts relating to the skill premium and progressivity. To capture the patterns in the data over the 1980s requires that we adopt a government policy which is biased towards the interests of skilled agents. Thus, in addition to demographic and technological factors, changes in the preferences of policy-makers appear to be a potentially important factor in determining the evolution of the observed skill premium.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: 31 Buccleuch Place, EH8 9JT, Edinburgh|
Web page: http://www.sire.ac.uk
More information through EDIRC
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.:
- Conesa, Juan Carlos & Kitao, Sagiri & Krueger, Dirk, 2006.
"Taxing capital? Not a bad idea after all!,"
CFS Working Paper Series
2006/21, Center for Financial Studies (CFS).
- Conesa, Juan Carlos & Kitao, Sagiri & Krueger, Dirk, 2006. "Taxing Capital? Not a Bad Idea After All!," CEPR Discussion Papers 5929, C.E.P.R. Discussion Papers.
- Juan C. Conesa & Dirk Krueger, 2004. "Taxing Capital: Not a Bad Idea After All," 2004 Meeting Papers 403, Society for Economic Dynamics.
- Juan Carlos Conesa & Sagiri Kitao & Dirk Krueger, 2007. "Taxing Capital? Not a Bad Idea After All!," NBER Working Papers 12880, National Bureau of Economic Research, Inc.
- Oded Galor & Joseph Zeira, 1993.
"Income Distribution and Macroeconomics,"
Review of Economic Studies,
Oxford University Press, vol. 60(1), pages 35-52.
- Pierpaolo Benigno, 2009.
"Price Stability with Imperfect Financial Integration,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 41(s1), pages 121-149, 02.
- Pierpaolo Benigno, 2008. "Price stability with imperfect financial integration," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
- Benigno, Pierpaolo, 2001. "Price Stability with Imperfect Financial Integration," CEPR Discussion Papers 2854, C.E.P.R. Discussion Papers.
- Teresa Garcia-Milà & Albert Marcet & Eva Ventura, 2010.
"Supply Side Interventions and Redistribution,"
Royal Economic Society, vol. 120(543), pages 105-130, 03.
- Guido Cozzi & Giammario Impullitti, 2008.
"Government spending composition, technical change and wage inequality,"
2009_02, Business School - Economics, University of Glasgow.
- Guido Cozzi & Giammario Impullitti, 2010. "Government Spending Composition, Technical Change, and Wage Inequality," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1325-1358, December.
- N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009.
"Optimal Taxation in Theory and Practice,"
Journal of Economic Perspectives,
American Economic Association, vol. 23(4), pages 147-74, Fall.
- Mankiw, N. Gregory & Weinzierl, Matthew Charles & Yagan, Danny Ferris, 2009. "Optimal Taxation in Theory and Practice," Scholarly Articles 4263739, Harvard University Department of Economics.
- N. Gregory Mankiw & Matthew Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," NBER Working Papers 15071, National Bureau of Economic Research, Inc.
- N. Gregory Mankiw & Matthew C. Weinzierl & Danny Yagan, 2009. "Optimal Taxation in Theory and Practice," Harvard Business School Working Papers 09-140, Harvard Business School.
- Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, June.
When requesting a correction, please mention this item's handle: RePEc:edn:sirdps:306. 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: (Gina Reddie)
If references are entirely missing, you can add them using this form.