Inequality, Debt Dynamics and the Incidence of Tax Rates: Addressing Macroeconomic Instability in a Post Keynesian Model

Clara Zanon Brenck ()
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Clara Zanon Brenck: Department of Economics, New School for Social Research

No 2212, Working Papers from New School for Social Research, Department of Economics

Abstract: This paper explores different tax regimes in a Post-Keynesian model where workers get into debt to emulate the consumption of upper-income classes. The government taxes income to fund a social wage that would reduce workers’ need to get into debt. Three tax regimes are analyzed: taxing profits, managers’ wages, or both. In a numerical exercise, we explore the effects of changing the within-wage and functional inequalities. The government’s income tax choices and the distribution of the wage bill matter for the sustainability of the economy and for the relation between distribution and growth. Taxing only profits and reducing wage inequality is the best possible outcome if we were to wind down the unsustainability feature of Neoliberalism without sacrificing real performance.

Keywords: Inequality; debt dynamics; tax regime; sustainable growth (search for similar items in EconPapers)
JEL-codes: D31 E12 O41 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2022-11
New Economics Papers: this item is included in nep-fdg, nep-hme, nep-pbe and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:2212

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