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Ex-ante Heterogeneity and Equilibrium Redistribution(Preliminary)

Author

Listed:
  • Bo Hyun Chang

    (University of Rochester)

  • Yongsung Chang

    (University of Rochester, Yonsei University)

  • Sun-Bin Kim

    (Yonsei University)

Abstract

The standard models have diculty in justifying the current labor income tax rate in the U.S. The optimal tax rate is much higher than the current rate (e.g., Piketty and Saez (2013)). A majority of the population should be also in favor of raising taxes, as the income distribution is highly skewed. We show that the political equilibrium is actually close to the current tax rate, once we take account the ex-ante heterogeneity in household earnings (e.g., Guvenen (2009)) and income-dependent voting behavior, (e.g., Mahler (2008)) into the standard incomplete-markets model.

Suggested Citation

  • Bo Hyun Chang & Yongsung Chang & Sun-Bin Kim, 2016. "Ex-ante Heterogeneity and Equilibrium Redistribution(Preliminary)," Working papers 2016rwp-93, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2016rwp-93
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    References listed on IDEAS

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    9. Bo Hyun Chang & Yongsung Chang & Sun-Bin Kim, 2016. "Pareto Weights in Practice: A Quantitative Analysis Across 32 OECD Countries," Working papers 2016rwp-92, Yonsei University, Yonsei Economics Research Institute.
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    Keywords

    Optimal Tax; Ex-ante Heterogeneity; Voting Turnout Rates;
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