Negative income taxes, inequality and poverty

Constantine Angyridis and Brennan Thompson ()

Canadian Journal of Economics, 2016, vol. 49, issue 3, 1016-1034

Abstract: We use a neoclassical growth model with heterogeneous agents to analyze the redistributive effects of a negative income tax system, which combines a flat rate tax with a fully refundable credit (demogrant). We show that changing the demogrant-to-output ratio causes significant changes in the distribution of income. Specifically, we find that increasing the demogrant-to-output ratio sharply reduces the level of inequality as well as both relative and absolute poverty (all measured in terms of post-tax total income). However, these reductions in inequality and poverty come at the expense of a significant reduction in output.

JEL-codes: D63 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Working Paper: Negative Income Taxes, Inequality, and Poverty (2015)
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