| By: |
Cecilia Garcìa-Peñalosa (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579);
Stephen J. Turnovsky (University of Washington - University of Washington) |
| Abstract: |
We examine how changes in tax policies affect the dynamics of the
distributions of wealth and income in a Ramsey model in which agents differ in
their initial capital endowment. The endogeneity of the labor supply plays a
crucial role in determining inequality, as tax changes that affect hours of
work will affect the distribution of wealth and income, reinforcing or
offsetting the direct redistributive impact of taxes. Our results indicate
that tax policies that reduce the labor supply are associated with lower
output but also with a more equal distribution of after-tax income. We
illustrate these effects by examining the impact of recent tax changes
observed in the US and in European economies. |
| Keywords: |
taxation; wealth distribution; income distribution; endogenous labor supply; transitional dynamics |
| Date: |
2008–11–24 |
| URL: |
http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00341001_v1&r=pub |