Negative Income Taxes, Inequality, and Poverty
We use a neoclassical growth model with heterogeneous agents to analyze the redistributive effects of a negative income tax system, which combines a flat rate tax with a fully refundable credit ("demogrant"). We show that changing the demogrant-to-output ratio causes significant changes in the distribution of income. Specifically, we find that increasing the demogrant-to-output ratio sharply reduces the level of inequality as well as both relative and absolute poverty (all measured in terms of post-tax total income). However, these reductions in inequality and poverty come at the expense of a significant reduction in output.
|Date of creation:||Aug 2012|
|Date of revision:||Aug 2015|
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- Brennan Thompson, 2012. "Flat rate taxes and relative poverty measurement," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(3), pages 543-551, March.
- Conesa, Juan Carlos & Krueger, Dirk, 2006.
"On the optimal progressivity of the income tax code,"
Journal of Monetary Economics,
Elsevier, vol. 53(7), pages 1425-1450, October.
- Juan Carlos Conesa & Dirk Krueger, 2002. "On the Optimal Progressivity of the Income Tax Code," Centro de Altisimos Estudios Rios Pe©rez(CAERP) 4, Centro de Altisimos Estudios Rios Perez (CAERP).
- Conesa, Juan Carlos & Krueger, Dirk, 2005. "On the Optimal Progressivity of the Income Tax Code," CEPR Discussion Papers 5040, C.E.P.R. Discussion Papers.
- Juan Carlos Conesa & Dirk Krueger, 2005. "On the Optimal Progressivity of the Income Tax Code," NBER Working Papers 11044, National Bureau of Economic Research, Inc.
- Juan Carlos Conesa & Dirk Krueger, 2004. "On the Optimal Progressivity of the Income Tax Code," Working Papers 131, Barcelona Graduate School of Economics.
- Conesa, Juan Carlos & Krueger, Dirk, 2005. "On the optimal progressivity of the income tax code," CFS Working Paper Series 2005/10, Center for Financial Studies (CFS).
- Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198292975.
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