Efficient Redistribution / Corina Boar, Virgiliu Midrigan.

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Boar, Corina

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w27622.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: What are the most efficient means of redistribution in an unequal economy? We answer this question by characterizing the optimal shape of non-linear income and wealth taxes in a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and explicitly takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. Though allowing for increasing marginal income and wealth taxes raises welfare, the incremental gains are small due to strong behavioral and general equilibrium effects. This result is robust to changing household preferences, the distribution of ability, the planner's preference for redistribution, as well as to explicitly modeling private business ownership and the ensuing heterogeneity in rates of return.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
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July 2020.

What are the most efficient means of redistribution in an unequal economy? We answer this question by characterizing the optimal shape of non-linear income and wealth taxes in a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and explicitly takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. Though allowing for increasing marginal income and wealth taxes raises welfare, the incremental gains are small due to strong behavioral and general equilibrium effects. This result is robust to changing household preferences, the distribution of ability, the planner's preference for redistribution, as well as to explicitly modeling private business ownership and the ensuing heterogeneity in rates of return.