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The Distributional Effects of Redistributional Tax Policy

Author

Listed:
  • Jason DeBacker

    (Department of Economics, Middle Tennessee State University)

  • Richard W. Evans

    (Department of Economics, Brigham Young University)

  • Evan Magnusson

    (Department of Economics, Brigham Young University)

  • Kerk L. Phillips

    (Department of Economics, Brigham Young University)

  • Shanthi P. Ramnath

    (U.S. Department of the Treasury, Office of Tax Analysis)

  • Isaac Swift

    (Department of Economics, Brigham Young University)

Abstract

This paper constructs a large scale overlapping generations model with heterogeneity across the lifecycle and over earnings ability types. The model is calibrated to the U.S. economy and includes realistic demographics, earnings distribution, taxes, and mortality risk. We consider the effects of two policies: an increase in income tax rates and a progressive wealth tax. We find that a more progressive income tax does not change inequality in consumption, income, or wealth across the life cycle, but it does reduce inequality across ability types. In contrast, a wealth tax reduces inequality over the life cycle, but slightly increases inequality across ability types. Inequality over ability types is greater concern than changes in equality over the lifecycle.

Suggested Citation

  • Jason DeBacker & Richard W. Evans & Evan Magnusson & Kerk L. Phillips & Shanthi P. Ramnath & Isaac Swift, 2014. "The Distributional Effects of Redistributional Tax Policy," BYU Macroeconomics and Computational Laboratory Working Paper Series 2014-08, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
    • Handle: RePEc:byu:byumcl:201408
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    File URL: https://docs.google.com/file/d/0B6KGaihAO5TJZGtfbk5Od3dkYUk/edit
    File Function: Fourth version, 2015
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    Citations

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    Cited by:

    1. Richard W. Evans & Kerk L. Phillips, 2018. "Advantages of an Ellipse when Modeling Leisure Utility," Computational Economics, Springer;Society for Computational Economics, vol. 51(3), pages 513-533, March.
    2. Moore, Rachel & Pecoraro, Brandon, 2021. "Quantitative Analysis of a Wealth Tax in the United States: Exclusions, Evasion, and Expenditures," MPRA Paper 109120, University Library of Munich, Germany.
    3. Diego d'Andria & Jason DeBacker & Richard Evans & Jonathan Pycroft & Magdalena Zachlod-Jelec, 2019. "Micro-founded tax policy effects in a heterogenenous-agent macro-model," JRC Working Papers on Taxation & Structural Reforms 2019-01, Joint Research Centre.
    4. Alan J. Auerbach & Kevin Hassett, 2015. "Capital Taxation in the 21st Century," NBER Working Papers 20871, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    inequality; Piketty; wealth tax; income tax; overlapping generations;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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