Does Growing Inequality Reduce Tax Progressivity? Should it?

43 Pages Posted: 5 May 2000 Last revised: 17 Oct 2010

See all articles by Joel B. Slemrod

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Jon Bakija

Williams College - Department of Economics

Date Written: March 2000

Abstract

This paper explores the links between two phenomena of the past two decades: striking increase in the inequality of pre-tax incomes, and the failure of tax-and-transfer progressivity to increase. We emphasize the causal links going from inequality to progressivity, noting that optimal taxation theory predicts that growing inequality should increase progressivity. We discuss public choice alternatives to the optimal progressivity framework. The paper also addresses the opposite causal direction: that it is changes in taxation that have caused an apparent increase in inequality. Finally, we discuss the non-event-study' offered by the large changes in the distribution of income--with no major tax changes-- since 1995, and discuss its implications for the link between progressivity and inequality.

Suggested Citation

Slemrod, Joel B. and Bakija, Jon, Does Growing Inequality Reduce Tax Progressivity? Should it? (March 2000). NBER Working Paper No. w7576. Available at SSRN: https://ssrn.com/abstract=220033

Joel B. Slemrod (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

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National Bureau of Economic Research (NBER)

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Jon Bakija

Williams College - Department of Economics ( email )

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Williamstown, MA 01267
United States

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