Inequality, Bipolarization, and Tax Progressivity

Oriol Carbonell-Nicolau and Humberto Llavador

No 1071, Working Papers from Barcelona School of Economics

Abstract: The steady rise in income and wealth inequality in the last four decades, together with the evolution of a vanishing middle class, has raised concerns about potentially pernicious effects of these trends on social stability and economic growth. This paper evaluates the possibility of designing tax systems aimed at reducing income inequality and bipolarization. Using two fundamentally different metrics, the relative Lorenz preorder popularized by Atkinson (1970) to measure inequality, and the relative bipolarization preorder put forth in Chakravarty (2009, 2015) to measure bipolarization, we provide a unified foundation of tax progressivity whereby, roughly, taxes are progressive if and only if they are inequality reducing if and only if they are bipolarization reducing. The details of this characterization vary depending on whether or not labor supply is responsive to taxation.

Keywords: Income inequality; Progressive Taxation; incentive effects of taxation; shrinking middle class; income bipolarization (search for similar items in EconPapers)
JEL-codes: D63 D71 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-pbe and nep-pub
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Journal Article: Inequality, Bipolarization, and Tax Progressivity (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1071

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