Tax progressivity and the Pareto tail of income distributions

C.C. Yang, Xueya Zhao and Shenghao Zhu

Economics Letters, 2023, vol. 231, issue C

Abstract: In a continuous-time version of the Bewley–Huggett–Aiyagari model, this paper shows theoretically and numerically that the fatness of the Pareto upper tail of the income distribution depends on tax progressivity only through the general equilibrium effect on the interest rate. With confiscatory taxes (marginal income tax rate approaching 100% at the top), the Pareto exponent is independent of tax progressivity.

Keywords: Tax progressivity; Pareto tail; Bewley–Huggett–Aiyagari model (search for similar items in EconPapers)
JEL-codes: D31 E21 H31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:231:y:2023:i:c:s0165176523002987

DOI: 10.1016/j.econlet.2023.111273

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