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The incidence of tax rates on workers’ debt stability and demand regimes

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  • Clara Zanon Brenck

Abstract

This paper explores different tax regimes in a Post Keynesian model where workers get into debt to emulate the consumption of upper-income classes. The government taxes income to fund a social wage that would reduce workers’ need to get into debt. Three tax regimes are analyzed: taxing profits, managers’ wages, or both. In a numerical exercise, we explore the effects of changing the within-wage and functional inequalities. The government’s income tax choices and the wage bill’s distribution matter for the economy’s sustainability and the relationship between distribution and growth. The demand regime of the economy is not independent of policy. Taxing only profits and reducing wage inequality are the best possible outcomes in the model if we were to wind down the unsustainability feature of neoliberalism without sacrificing real performance.

Suggested Citation

  • Clara Zanon Brenck, 2025. "The incidence of tax rates on workers’ debt stability and demand regimes," Review of Keynesian Economics, Edward Elgar Publishing, vol. 13(1), pages 51-70, January.
    • Handle: RePEc:elg:rokejn:v:13:y:2025:i:1:p51-70
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    More about this item

    Keywords

    Inequality; Debt dynamics; Tax regime; Sustainable growth;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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