The Redistributive Effect of Risky Taxation

Young Chun ()

International Tax and Public Finance, 2001, vol. 8, issue 4, 433-454

Abstract: This paper examines heterogeneous effects of uncertainty of the U.S. tax policies across income classes. We construct a multi-class general equilibrium stochastic OLG model with a stochastic process of effective tax rates. In accordance with empirical evidence, the model includes two types of families: a high-income family, whose members have bequest motives and share risks; and a low-income family, whose members do not. Some notable results are as follows: (i) under a CRRA preference the efficient allocation of resources within family generates the same proportional standard deviation of consumption and leisure among family members; (ii) the welfare cost of the uncertainty of a tax policy is higher for the low-income family than for the high-income family: the cost for the low-lifetime-income family is about 145% of that for the high-lifetime-income family; Finally, (iii) the absolute level of the welfare cost for the whole population is shown to be about 0.53% of GNP, which is higher than the welfare cost measures by previous research such as Bizer and Judd (1989) and Skinner (1988). Copyright Kluwer Academic Publishers 2001

Keywords: uncertainty; taxation; altruism; redistributive effect (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (2)

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DOI: 10.1023/A:1011271008229

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