The Inherent Conflict Between Progressive Tax Rates and Income Inequality: Lessons from COVID-19 Restrictions
28 Pages Posted: 22 Mar 2021 Last revised: 29 Dec 2021
Date Written: December 12, 2021
Abstract
We examine the relation between progressive tax rates, income inequality, and state income tax collections. We provide evidence that states with more progressive tax rate structures have higher tax collections. We then show an enhanced relation for states that enacted more stringent COVID-19 restrictions, which increased income inequality. Our evidence sheds light on the inherent conflict between progressive tax structures and income inequality—income inequality increasing policies result in higher tax collections with a progressive tax system even though the latter reduces after-tax income inequality.
Keywords: COVID-19, Progressive Tax Rates, Income Inequality, State Tax Collections, Health Economics; Political Economy
JEL Classification: D63, H24, H31, H51, H53, H71
Suggested Citation: Suggested Citation