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Supply side interventions and redistribution

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Abstract

In this paper we study the welfare impact of alternative tax schemes on labor and capital. We evaluate the e_ect of lowering capital income taxes on the distribution of wealth in a model with heterogeneous agents, restricting our attention to policies with constant tax rates. We calibrate and simulate the economy; we find that lowering capital taxes has two effects: i) it increases effciency in terms of aggregate production, and ii) it redistributes wealth in favor of those agents with a low wage/wealth ratio. We find that the redistributive effect dominates, and that agents with a low wage wealth ratio would experience a large loss in utility if capital income taxes were eliminated.

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  • Teresa Garcia-Milà & Albert Marcet & Eva Ventura, 1995. "Supply side interventions and redistribution," Economics Working Papers 115, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:115
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    More about this item

    Keywords

    Taxation; Heterogeneity; Redistribution; Simulation;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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