The Demand for Income Tax Progressivity in the Growth Model

57 Pages Posted: 6 Feb 2011

See all articles by Daniel Carroll

Daniel Carroll

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: February 4, 2011

Abstract

This paper examines the degree of income tax progressivity chosen through a simple majority vote in a model with savings. Households have permanent differences with respect to their labor productivity and their discount factors. The government has limited commitment to future policy, so voting is repeated every period. Because the model features mobility within the wealth distribution, the median voter is determined endogenously. In a numerical experiment, the model is initialized to the 1992 U.S. joint distribution of income and wealth as well as several statistics of the federal income tax distribution. Support for a high degree of progressivity is widespread. In the long run, households that vote for lower progressivity have high labor productivity and/or very high wealth. A movement towards greater progressivity increases aggregate capital and income, but effects only a small decrease in long-run income and wealth inequality.

Keywords: Heterogeneity, progressive taxation, wealth distribution, electoral competition

JEL Classification: E21, E62, H24

Suggested Citation

Carroll, Daniel, The Demand for Income Tax Progressivity in the Growth Model (February 4, 2011). Available at SSRN: https://ssrn.com/abstract=1755164 or http://dx.doi.org/10.2139/ssrn.1755164

Daniel Carroll (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
48
Abstract Views
411
PlumX Metrics