Technical Change, Wage Inequality, and Taxes

Laurence Ales, Musab Kurnaz and Christopher Sleet

American Economic Review, 2015, vol. 105, issue 10, 3061-3101

Abstract: This paper considers the normative implications of technical change for tax policy design. A task-to-talent assignment model of the labor market is embedded into an optimal tax problem. Technical change modifies equilibrium wage growth across talents and the substitutability of talents across tasks. The overall optimal policy response is to reduce marginal income taxes on low to middle incomes, while raising those on middle to high incomes. The reform favors those in the middle of the income distribution, reducing their average taxes while lowering transfers to those at the bottom. (JEL D31, H21, H23, H24, J31, O33)

JEL-codes: D31 H21 H23 H24 J31 O33 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/aer.20140466
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Citations: View citations in EconPapers (49)

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