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Tax progressivity and income inequality in the US

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  • Jalles, João Tovar
  • Karras, Georgios

Abstract

Using a novel data set on US tax progressivity constructed by Borella et al. (2023), we estimate its short- to medium-term dynamic effects on US income inequality since 1970. By means of local projections, we find that an increase in tax progressivity reduces the Gini index implying a reduction in income inequality. Our estimates suggest that the effect is gradual but sizeable, statistically significant (at its peak, but not during all years evaluated), and robust to controlling for the tax rate.

Suggested Citation

  • Jalles, João Tovar & Karras, Georgios, 2024. "Tax progressivity and income inequality in the US," Economics Letters, Elsevier, vol. 238(C).
    • Handle: RePEc:eee:ecolet:v:238:y:2024:i:c:s0165176524001988
    DOI: 10.1016/j.econlet.2024.111715
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    References listed on IDEAS

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    4. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2017. "Optimal Tax Progressivity: An Analytical Framework," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1693-1754.
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    More about this item

    Keywords

    Tax progressivity; Tax rates; Gini; Time series; Local projections;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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