The economic consequences of major tax cuts for the rich

David Hope and Julian Limberg

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper uses data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment. First, we use a new encompassing measure of taxes on the rich to identify instances of major reduction in tax progressivity. Then, we look at the causal effect of these episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis. We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.

Keywords: tax cuts for the rich; income inequality; growth; unemployment; difference-in-differences; Mahalanobis matching (search for similar items in EconPapers)
JEL-codes: E6 N0 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2020-12
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:107919

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