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Diversity and Economic Growth in a Model with Progressive Taxation

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  • Wang, Wei
  • Suen, Richard M. H.

Abstract

Is a more heterogeneous population conducive or detrimental to capital accumulation and economic growth? This paper addresses this question using a dynamic general equilibrium model with ex ante heterogeneous consumers and progressive taxation. We show that the answer depends crucially on the shape of the marginal tax function. If this function is concave, then a more heterogeneous population will have a lower average marginal tax rate and a higher level of capital accumulation. The opposite is true when the marginal tax function is convex. These results are robust in a variety of models with either exogenous or endogenous economic growth.

Suggested Citation

  • Wang, Wei & Suen, Richard M. H., 2015. "Diversity and Economic Growth in a Model with Progressive Taxation," MPRA Paper 67569, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:67569
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    References listed on IDEAS

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    More about this item

    Keywords

    Consumer Heterogeneity; Progressive Taxation; Economic Growth;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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