Wage Inequality and Optimal Tax

Yena Park
Additional contact information
Yena Park: University of Rochester

No 1497, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: How should redistributive governments change tax schedule in response to increase in wage inequality? This paper investigate the impact of widening dispersion in wage inequality on optimal tax policy, especially focusing on the adjustment of the wage compression channel (Stiglitz (1982)). The response of tax policy depends on the source of the increasing wage inequality. If the wage inequality is mostly explained by the residual inequality, which is generated by the increasing dispersion in unobserved ability, the return to unobserved skill can be decreasing. Thus, increasing wage inequality caused by widening dispersion in unobserved ability makes wage compression channel when setting optimal tax, which will make the tax schedule relatively less regressive.

Date: 2019
New Economics Papers: this item is included in nep-pbe
References: Add references at CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_1497.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:1497

Access Statistics for this paper

More papers in 2019 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().