Inequality-growth nexus under progressive income taxation

Shu-Hua Chen

Journal of Macroeconomics, 2020, vol. 65, issue C

Abstract: Within heterogeneous-household extensions of Romer’s (1986) one-sector representative agent model of endogenous growth, this paper finds that changes made to the U.S. statutory income tax in the past decades account for a substantial portion of the following stylized facts: (i) U.S. income inequality significantly deteriorates since the mid-1980s; (ii) the inequality-growth nexus displays a positive slope before and after the implementation of the Tax Reform Act of 1986 (TRA-86); and (iii) the slope of the inequality-growth nexus sharply declines between the pre- and post-TRA-86-reform periods, indicating less deterioration in real GDP per capita growth when pursuing a more equal income distribution after 1986. In addition to income inequality, the responses of several other measurements of inequality to changes in the tax code parameters are also explored.

Keywords: Progressive income taxation; Income inequality; Endogenous growth (search for similar items in EconPapers)
JEL-codes: E32 E62 O41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:65:y:2020:i:c:s0164070420301609

DOI: 10.1016/j.jmacro.2020.103234

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